The Reserve Bank of India (RBI) established the consumer education and protection department (CEPD) to safeguard the interests of bank customers and ensure adherence to consumer protection policies. However, recent incidents reveal alarming shortcomings in its operations, leaving countless customers exposed to unfair banking practices. These concerns are particularly pressing as India accelerates its transition to a digital economy.
Case 1: Karur Vysya Bank's Unlawful Charges
Karur Vysya Bank (KVB) imposed a service charge of Rs2.25 plus goods and services tax (GST) for savings bank accounts exceeding 90 transactions in a six-month period. Disturbingly, these charges extended to exempted digital transactions like unified payment interface (UPI) and IMPS payments, violating the Payment and Settlement Systems (PSS) Act and guidelines issued by the central board of direct taxes (CBDT).
Despite reporting this issue to the CEPD in October 2023, along with follow-ups for more than a year through RBI’s centralised public grievance redress and monitoring system (CPGRAMS) and right to information (RTI) queries. RBI informed that KVB has ceased levying these charges from April 2023. But the Bank has failed to refund the amounts collected from January 2020 till March 2023. Even after 18 months, the CEPD has not enforced a refund, revealing significant regulatory lapses.
Case 2: IDBI Bank’s Partial Refunds
IDBI Bank imposed charges of Rs20 plus GST on basic savings bank deposit accounts (BSBDAs) for exceeding four free transactions per month. Following complaints, the RBI instructed IDBI Bank to refund these charges. While Rs8.23 crore was refunded, the GST component amounting to Rs1.48 crore has not been returned—contrary to Section 54(8) of the GST Act which mandates the repayment of GST also when the principal amount is refunded.
Despite repeated reminders and RTI queries, IDBI Bank has not recredited the GST to thousands of its BSBDA customers and the CEPD has failed to intervene effectively, further undermining its accountability.
Case 3: Canara Bank’s Partial Refunds
Canara Bank was levying Rs5 plus GST indirectly from the basic savings bank account-holders on the exempted digital transactions. The matter was taken up with various departments of RBI – CEPD, department of regulation (DoR) and department of supervision (DoS).
It is also pertinent to note that the Bank has not refunded all the account-holders the wrongly collected service charges from 1 January 2020 to 30 September 2022. The RTI reply and correspondence show that, as of 31 December 2024, there were missed refunds which the Bank has admitted and agreed to review and revisit. The present status is not known.
Violations by the Banks
All three banks have violated
circular 16/2020 issued by the ministry of finance's CBDT. The circular strictly prohibits the collection of any charges, including merchant discount rates (MDR), directly or indirectly, for payments made through prescribed electronic modes. Such breaches attract penal provisions under Section 271DB of the Income-Tax (I-T) Act and Section 26 of the Payment and Settlement System (PSS) Act.
Systemic Failures
The CEPD’s inability to act decisively in these cases raises critical concerns about its effectiveness:
- Prolonged delays: Lack of timely responses erodes public confidence in regulatory mechanisms.
- Non-enforcement of guidelines: Banks continue to flout CBDT and RBI directives without consequence.
- Impact on financial inclusion: Hidden charges disincentivise consumers from embracing digital payment systems.
The Way Forward
To regain public trust and ensure robust consumer protection, the CEPD must undertake the following measures:
1. Strengthen accountability: Implement strict timelines for grievance resolution and publish regular updates on complaint outcomes.
2. Conduct proactive audits: Regularly audit banks for compliance with digital transaction guidelines.
3. Collaborate with stakeholders: Partner with tax authorities and acquiring banks under programmes like the UPI-RuPay incentive scheme.
4. Empower consumers: Increase public awareness of grievance redress mechanisms, including RBI’s Integrated Ombudsman Scheme.
Conclusion
The CEPD’s inability to address critical issues involving Karur Vysya Bank and IDBI Bank highlights systemic failures that demand urgent attention. As India embraces a cashless economy driven by initiatives like BHIM-UPI and the Rupay incentive programme, ensuring consumer protection is not optional—it is imperative. RBI must ensure that its consumer protection arm fulfils its mandate effectively, safeguarding millions from exploitative practices while building trust in the banking system.
(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.)
It is pathetic that though the banks had admitted that they have collected charges against the RBI circulars/rules but not refunded fully.