RBI deputy governor Dr KC Chakrabarty said that the decision on various charges levied by banks has been left to their respective board of directors and the Indian Banks Association oversees the reasonableness aspect and can suggest a cap on the charges. This policy prevents the RBI from interfering with the various charges levied by banks and customers who found them unreasonable would do well to switch banks

Unreasonably high and ever-increasing services charges was an issue that was strongly raised by consumer groups at the "Open House with Dr KC Chakrabarty" organised by Moneylife Foundation. Variable and vastly differing charges are also a matter of concern, since ordinary customers are unable to take a call on what is a fair and reasonable charge and what is extortionate.   

Mohan Siroya, chairperson of Consumer Complaints Cell (CCC) said, "The 'greatest wrong' the Reserve Bank of India (RBI) has committed is by disowning its responsibility to supervise the 'exploitation' of bank customers. RBI has given the full liberty to each bank to levy 'service charges' as per their wish. It has become an open market. Now it has come to the light from the Banking Codes and Standards Board of India (BSCBI) that the Indian Banks' Association (IBA) has been given an authority to put a 'cap' on such charges, thus fully abdicating its own duty as a statutory regulator. How is such a body expected to control the greed of making more and more money by its own members?"
 
"As a consumer I'm ready to pay the prescribed service charges, but one bank is charging Rs100 for a particular service whereas another bank is charging Rs10 for the same service. What does the consumer do then?" he said.
 
Mr Siroya also spoke about his Right to Information (RTI) initiative to figure out how these charges are decided; it led to the conclusion that individual banks are free to decide their own charges. It took the CC Cell and Mr Siroya three years to just know that it is the BSCBI that had the mandate to monitor reasonableness of banking charges.
 
In an oligopolistic set up, players get together and decide on the price of a product. On the other hand, healthy competition actually reduces the prices of goods and services which is good for the consumer. However, despite so many banks offering competitive products, the charges are increasing. Competition between banks was supposed to keep service charges in check in a liberalised economic environment, but this is not happening Mr Chakrabarty holds the view that the absence of fair competition because of entry barriers to new banks is one reason why competition has failed to work.
 
There are more than 150 banking entities in India, which includes public, private, foreign and cooperatives. To most consumers, this seems a large enough number to ensure a competitive environment. Why is competition not working? The view of consumer organisations is rather different. All banks listed on stock exchanges are under pressure to show higher profits. While they have not been able to keep the non- performing assets (NPAs) in check through prudent lending, any increase in service charges goes straight to the bottomline. Hence, all banks are happy to follow the lead of foreign and private banks in increasing service charges, although nationalised banks, probably conscious about their ownership, will remain a step behind.

Adding to Mr Siroya's view, Sucheta Dalal, trustee of Moneylife Foundation said, "The IBA operates in a particular pattern. When one bank decides to charge Rs500 for a debit card, the others, especially nationalised banks, follow its lead and say; okay we will charge only Rs250. This is how banking charges increase every time. Competition does not work because IBA has become a cartel. When was the last time that IBA spoke to any consumer organization or sought the consumers' views?"

Ashok Ravat of All India Bank Depositors Association (AIBDA) and Vasundhara Deodhar from Mumbai Grahak Panchayat (MGP) also raised questions on the reasonableness of banking charges. Both requested the banking regulator to determine reasonable service charges.

Dr Chakrabarty, responded by saying that the decision to prescribe service charges has been left to board of directors of the individual bank. "We said the board should decide (on banking charges) and if the board has given the mandate to the IBA, then we cannot take any action against the Association". On the charge that IBA operates like a cartel he said the RBI cannot intervene. "At best you can approach the Competition Commission, if you feel this is cartelisation," he said.

Referring to Dr Chakrabarty's suggestion to switch banks in case the customer was not satisfied with the bank services, Mr Siroya asked, "How often can a consumer jump from one bank to another on the basis of charges and not to mention the endless KYC hassles each time it is done?"

Initially, bank charges were under the domain of BCSBI, an independent and autonomous body and were supposed to protect banking consumers. It is not a compensation mechanism and looks into an individual complaint only to the extent it points to any systemic compliance failure. It had published a "Code of Conduct" for banks to follow in order to protect consumers' interest, as well as adopt transparent and fair practices.
Dr Chakrabarty, responding to demand for looking into this matter said, "I have no problem with your demand, however, I will not be able to satisfy you within the current framework."

Mr Siroya said, "Under the current rules if customers are penalised or have paid heavy 'service charges' even for a technical fault or being unaware of the repercussion, the bank also must be equally held liable to compensate the customer for 'any deficiency in service' by way of delay or even any technicality."

Replying to the question on penalising banks, the RBI deputy governor said, "If we become too stringent and as you say, we put very high penalty on the bank, no bank is going to pay from its pocket, it will simply increase your charges more. Our purpose is to stabilize banking system. It is not that we cannot penalize, but this way it won't work."

"Customer is the most important part of a banking system and it is necessary that the bankers do not 'squeeze' customers. However, after saying this, we must understand that banking is not just a service but it is also a business and banks need to levy charges on services in order to survive", Dr Chakrabarty added. He also said that some of the banks that attract a lot of complaints also tend to sweep the "best bank" awards handed out by many organisations.

Further in the discussion, Moneylife Foundation also made the point that a customer has no way to judge which is a good bank, in terms of service quality and costs. It was pointed out that in 2006, one Delhi based NGO had conducted a survey on service quality. Many banks were unhappy with the findings and it was decided that the IBA or the BCSBI would conduct such surveys. Nothing has been done in that direction since then. In the absence of such a survey, how are consumer supposed to know that the bank that they switch to would be any better than the previous one?

Clearly, there are a lot of questions that need answers. From the consumer's perspective, the most positive aspect is that the RBI is now willing to engage with customers directly, hear their issues first hand and offer to examine the merits of each demand. This was evident from the fact that although Dr Chakrabarty personally took all the questions during the open house, the programme was attended by all those who would interact with the consumer.

Present at the meeting were AC Mahajan, chairman of BCSBI and Mr Narayana Raja its chief executive. Dr Deepali Pant Joshi, executive director of the RBI, Supriya Pattnaik, chief general manager (CGM) of RBI, Rosemary Sebastian, Banking Ombudsman of Mumbai, M Balachandran, director of National Payments Corporation of India (NPCI) as well as former CGMs in charge of customer services-Kaza Sudhakar and Jagan Mohan Rao. DG Kale, general manager in the Consumer Services department at RBI was also present.