In a world where financial emergencies can strike at any moment, one woman's desperate need for medical funds turned into a distressing ordeal. My friend's sister, a 72-year-old widow, faced urgent medical expenses and reached out to her brother for help. He promptly transferred money to her bank account via UPI, expecting it to arrive swiftly. However, within minutes, she called back, distraught to learn that a significant portion of the funds had been seized by the bank as service charges. This was just the beginning of a troubling saga.
The Root of the Problem
The issue stemmed from her inability to maintain the stipulated minimum balance in her savings account. Over time, her balance dwindled to zero, leading the bank to impose a lien on her account for non-compliance with minimum balance requirements. Some banks call this lien as 'hold balance'.
For instance, if the monthly charge for not maintaining the minimum balance was Rs250, after six months, Rs1,500 would be earmarked—even if her actual balance was zero. Consequently, when any amount was credited to her account, it was automatically appropriated toward these charges.
Shocking Discovery
In another instance, a labourer from Uttar Pradesh faced an unexpected hurdle while trying to close his account at a public sector bank in Chennai. He was informed that he needed to pay Rs991.20 to close his account due to accumulated service charges for not maintaining the minimum balance over seven months. Shocked and disheartened, he realised he would have to leave his account open rather than pay this hefty fee.
Negative Balance Dilemma
Customers who check their account balances through ATMs or mobile banking might assume that a zero balance means no funds are available. However, they are often met with a shocking revelation: their accounts show a negative balance. This situation is not just frustrating; it is an insult added to injury for those already struggling financially.
Few examples:
Customer Complaints on the Rise
Such experiences are not isolated incidents; numerous customers have taken to social media platforms like Twitter to voice their grievances against banks for these practices. The question arises: Are banks justified in imposing such charges on customers who are already facing financial hardships?
RBI's Clear Guidelines
In November 2014, the Reserve Bank of India (RBI) issued clear instructions under circular number DBR.Dir.BC.No.47/13.03.00/2014-15 aimed at protecting customers from negative balances due to service charges. Ref: link
Key points from this guideline include:
• Reasonable charges: Penal charges must be reasonable and aligned with the average cost of providing services.
• No negative balances: Banks must ensure that savings account balances do not turn negative solely due to charges for non-maintenance of minimum balances.
Despite these guidelines being in place for over a decade, compliance remains questionable.
Questions left unanswered
Why are banks failing to adhere to these regulations? Why aren't they following the fair practice code? Furthermore, can banks legally impose other service charges that result in negative balances? The RBI's stance is clear: such practices are prohibited.
Banks are misinterpreting RBI's guidelines to their advantage and using technology to exploit gullible customers. Has this issue gone unnoticed during RBI's annual inspections? Or has the regulator turned a blind eye?
Implications of Non-compliance
The consequences of banks' non-compliance with regulatory guidelines are far-reaching:
• Silent suffering of customers: Banks treat the customers unfairly, and fleece them by exploiting their ignorance. Customers may feel browbeaten, leading to a loss of trust in banks.
• Inactive accounts: Millions of accounts may remain dormant as customers choose not to revive them due to excessive fees.
• Fraud-prone/ potential cyber risk: The inactive/ inoperative accounts are fraud-prone areas and it adds to the cost of monitoring by banks. Dormant accounts may be converted as a mule account and exploited for illicit activities
• Misleading statistics: The existence of these zero-balance accounts skews financial inclusion statistics.
• Credit score damage: Accounts marked with negative balances can adversely affect customers' credit scores and result is more complaints.
• Reputational damage: Negative publicity can deter potential customers and harm the bank's image. Banks may face lawsuits from customers over unfair practices.
Call for Action
The department of consumer affairs and the regulator (RBI) must take serious action against banks' non-compliance. Unambiguous directives must be issued to halt these practices. Clarification may also be given that marking lien/ hold balance should not be done for all types of service charges. Banks should be mandated to remove liens from affected accounts as a one-time corrective measure.
In conclusion, while banks play a crucial role in our financial ecosystem, their practices must align with regulatory guidelines designed to protect consumers. It is time for regulators and banks to prioritise customer welfare over profit margins and ensure that financial services remain accessible and fair for everyone.
(Chandramouli Mohan retired as a senior manager from a public sector bank after 38 years of service in various capacities in several places across the country. He has been an RTI and consumer activist since his retirement in March 2020.)
Well captured Mr Chandramouli Mohan !!
Branch Managers have the previlege to waive the Account Closure charges at the time of account closure. But no one exercises it. Rather, many of the current younger geneation Managers (except a very few) are not even aware of the previleges or power they have as a Branch Head. For everything, they point their fingers to 'System'. They fail to understand the reality.
Present day bankers at the counters are blessed in a way. They are free from periodical interest calculation, interest checking, balancing of accounts, tallying of various heads, reconciliation etc etc which are taken care by the 'System' itself.
I visit the Branch occasionally. However, I have witnessed incidents of customers being sent from one counter to the other and to the Branch Manager's cabin for a simple clarification. I have heard counter people telling to dial the 'Toll Free Number' for everything.
Huff...! One page is not sufficient to write many such gaps in customer service.
Mr Chandramouli Mohan, please do continue your yeoman service in highlighting such issues.