Dinesh Kamath's Editorial 'Banks should consider the interests of Depositors' that was published in Newsband

Banks should consider the interests of Depositors

SBI’s re-introduction of charges on non-maintenance of minimum balance in April last year had become a big issue. Concerns are raised over banks unduly charging depositors for a plethora of services. The recent uproar over banks seeking to amass penalty income to make up for losses in their core lending business is not without reason. Why the bank should impose an additional penalty for failure to maintain a minimum balance? After all banks are the custodians of public money

A major portion of a bank’s income comes from lending, But banks are now exploring alternative ways of raising income. Banks are supposed to ensure that the interests of depositors are better served.

This development could be better described as "Robbing Peter to pay Paul". Bankers are responsible for poor penetration of the banking services across the length and breadth of the country. No matter how hard the government of the day tries, bankers are still reluctant to serve a vast majority of Indians. Like the Chennai auto drivers, they want maximum profit from minimum customers.

Bank do incur charges on maintaining accounts. The minimum balance should be only to recover that cost and not to make a killing out of it.

Instead of improving interest income by prudent lending and optimising expenditure, it is unfortunate that banks have started to earn by fees for charging every service which they are bound to extend by contract terms. Accepting cash, increase of folios or visits to lockers beyond stipulated numbers are penalty viewed and charged. When automation in banks were implemented the unions were told that they would greatly reduce operating expenses while improving speed and accuracy. All the gains of automation and reduction of staff by VRS made efficiency gains but were lost in reckless imprudent lending to large influential borrowers with loan growth averaging 25-30%.

Bank officials give more importance and respect to borrowers than to Depositors. Govt. and RBI should ensure that the interests of depositors are better served. Banks which are dependent on the trust reposed by depositors should be extra cautious while doing anything that can affect the sentiments of their clientele including depositors.

In this, ever since the deregulation of interest rates long ago, the track record of banks both in public sector and in private sector has not been encouraging. While RBI Governors have at times expressed desperation about banks being fast in increasing lending rates and slow in passing on benefits of rate cuts, the present trend of sweeping out small savers balances under one pretext or the other is deplorable. Such moves will chase away savers from banks.

Banks should be aware that social media which is working overtime to spread rumours and negative news about unreasonable bank charges will give credibility to such rumours which will have an adverse impact on the trustworthiness of the Banking System in the long run.