‘Depositors reeling under the impact of interest rate cuts’

The All India Bank Depositors’ Association (AIBDA) has told the Reserve Bank of India (RBI) that depositors are reeling under the impact of interest rate cuts and that there are no compelling reasons for it to reduce the repo rate.

In its pre-monetary policy representation to the RBI Governor Shaktikanta Das, AIBDA also underscored the charges imposed for debit card use when transactions are declined at ATM or POS due to insufficient funds in the account should be rationalised.

Further, the association requested the RBI to review its extant instructions to Payment Aggregators (PAs) and Payment Gateways (PGs) to ensure that these are not exploited by these entities to engage in profiteering.

The association observed that the sharp reduction in term-deposit rates, in the wake of the cumulative 250 basis points repo rate cut between August 2018 and May 2020, has adversely affected both the nominal and real interest incomes of depositors in general, and the small income earners and senior citizens more severely.

For example, a fresh deposit of one-year to less than two years’ tenor parked with the State Bank of India is now earning a saver 5 per cent interest against 6.70 per cent in August 2018.

After the last repo rate cut from 4.40 per cent to 4 per cent on May 22, 2020, this rate has remained unchanged for the last eight months.

AIBDA asserted that there are virtually no compelling grounds for the Monetary Poilcy Committee and the RBI to consider withdrawal of the “strategic pause” of the last about eight months with respect to the key policy rates as the recent fall in the retail inflation rate is tentative and fragile.

Exorbitant charges

The association said over the years banks have been imposing exorbitant charges on use of debit card whenever there is a transaction decline at ATM or point of sale (POS) due to insufficient balance in the account.

These charges are predominantly of the order of ₹25 plus Goods and Service Tax.

“Such exorbitant penalty for digitally paying consumers disincentivises them, thereby moving many away from digital payments.

“This applies more to the marginalised class of depositors who may not always have adequate funds in their accounts.” said Sunil S Bhandare, President, and Amitha Sehgal, Honorary Secretary, AIBDA.

They emphasised that such bank charges do not make sense since the rationale behind it is flawed.

“We can still understand that as a deterrent, banks charge for cheque bounce, where Cheque/Electronic Clearing Service returns involve third parties and create distrust in the payment mode.

“However, declined POS/ATM transactions due to insufficient balances is nowhere at par with cheque/ECS returns. It does not involve any intent of systemic inconvenience or distrust to a third party,” reasoned the AIBDA office-bearers.

AIBDA mentioned that there is no cost imposed by the National Payments Corporation of India/acquirer bank onto the card-issuing bank for debit card use when transactions are declined at ATM or POS due to insufficient funds in the account.

MDR

AIBDA flagged the current market practice of airline industry and even a few hospitals and other service institutions charging disproportionately high surcharges/ convenience fees, putting consumers at a disadvantage.

“It was expected that the RBI would bring forth regulation to ensure that such charges are reasonable and fair to consumers.

“But with the...instruction (Guidelines on Regulation of PAs and PGs), the RBI appears to have legitimised such charges. Moreover, there seems to be a back door entry to MDR (merchant discount rate) as PAs would typically enter into a revenue sharing arrangement with the acquirer banks,” the Association said.

All these charges, unfairly, are ultimately thrust onto consumers who use the digital platforms, it added.

MDR is the fee charged by the acquirer bank (that provides necessary infrastructure to the merchant to accept payments) to the merchant.