Banking services turn costly for the common man

Inflation has not spared the banking sector either. But it is the common man who is feeling the pinch as banks up the bill for services.

Banks are charging for looking up their accounts (savings or current) on the Internet as also for mobile banking. While some banks levy an annual fee on the debit card use, a few have increased charges for depositing cash and issue of demand draft.

Without doubt, banking has now become a costly affair.

Caught between the high cost of operations and low income generation, banks say they have no option. The hike in charges is expected to cut operation costs and bolster their bottomlines. Currently, cost-to-income ratio for banks is high, at 46-50 per cent for most banks. This implies that expenses are eating into about half of the banks’ income.

SMS facility

Lalit Sinha, General Manager, Alternate Channels Banking, Union Bank of India, said telecom charges for SMS alerts for banks have risen four-five times in the past six months. “Banks cannot bear these costs. So they will be passed on to customers,” he said.

It is not just telecom majors that have hiked rates to deliver SMS. Banks have been facing higher charges from intermediaries such as ValueFirst and ACL Wireless, which specialise in sending text messages from computers to mobiles.

Sinha also pointed out that Union Bank sends about seven lakh SMS every day, and the cost per message has increased from 4-5 paise to 25 paise in the last few months. “All banks will be forced to pass on the higher charges,” he added.

While ICICI Bank and Axis Bank charge Rs 15 per quarter for savings bank account customers getting SMS alerts, HDFC Bank charges customers for InstaAlert services, which is over and above the regular SMS that a customer gets.

Kotak Mahindra Bank, whose cost-to-income ratio is as high as 50.6 per cent, has reduced its SMS alert charges from Rs 200 to Rs 120 a year (Rs 30 per quarter), which is still higher than other banks that charge Rs 15.

Terming the levy of charges as inevitable, K. V. S. Manian, President, Consumer Banking, Kotak Mahindra Bank, said: “The increase in charges for services is inflation-led. As inflation rises, the cost for banks will also rise. Hence, we have to pass it on to consumers.”

“Also, if this applies to other industries, which increase their price during inflation, why not banks,” he added.

Public sector banks

Apart from private banks, major public sector banks like State Bank of India and Punjab National Bank (PNB) have also started levying similar charges.

PNB has revised the cash deposit charges at all branches within the same clearing centre and city. From April 2, customers are being charged Re 1 per Rs 1,000 or a minimum of Rs 25 per transaction on select products such as savings account. Monish Shah, Senior Director at Deloitte India, said though banks started with free services to remain competitive, there is now an increasing emphasis on operational efficiency.

“There is a realisation that being value driven is also important. Moreover, there is a segment of customers willing to pay for these services.”

According to another private sector official, “This is a risk mitigation mechanism that banks apply in a lower interest rate scenario and increased telecom service prices.”

Banks may have their own reasons to hike transactions fees, but it will be one more burden for the customers already battling inflation on several fronts.