Not at your service

Recently, State Bank of India announced service charges for accounts that do not meet balance qualifiers and also announced charges for cash withdrawal and cash deposits based on defined thresholds. Just yesterday, SBI revised charges once again on a host of services. Private banks already have similar charging structures and these entire set of charges merit questioning on a number of fronts.

Technology : Cost of technology-linked infrastructure and of connectivity continues should come down. Banks are using the same technology platforms, so why should the cost to customer actually go up at this stage when all linked infrastructural costs continue to decline?

Cost rationalisation : Banks have been investing heavily in minimising cost to serve. From centralising operations to outsourcing to focussing on mobile and digital, banks are going all out to reduce cost to serve. So, why would charges again need to increase at this juncture? Networked ATMs are becoming the norm. And vibrant organisations like the National Payments Corporation of India continue to reduce switching charges on Rupay transactions for ATMs as well as bringing down merchant discount rates to drive PoS transactions. These benefits need to flow to customers.

Lower interest rate on deposits : Banks have to pay interest on saving accounts and on fixed deposits. But both of these rates have only been going one way — down. Incidentally, the lowest rate on deposits is offered by SBI — 6.5 per cent for three- and five-year tenures. So why should service charges increase at this juncture?

Current accounts : Service charges for current accounts have also been revised. This is a surprise because banks provide no interest rates on current accounts. And even if a bank is providing 4 per cent interest rate on a Savings Account, it can lend at the lowest level in the interbank market at 6-7 per cent with a 2-per cent margin to make a revenue of ₹300 annually on an account with an average balance of ₹15,000 which is classified as below the qualifier of ₹25,000 minimum average daily balance.

Finally, such a step can be attributed to the banking sector’s overall drive to ramp up fee income which is risk-free and hence valued in a high-NPA environment. However, the same can be achieved in different ways without simply increasing or adding charges. For example, debit card usage at PoS machines instead of for cash advances can be promoted by providing relevant loyalty programmes such as reward points, miles or cash back.

Similar incentives can be offered for internet banking enrolment and usage. Also, overdraft facilities can be embedded with debit cards to create an additional revenue stream for banks and to protect customers when they run out of balance. Also any fees and charges can be linked to valued added insurance features in areas such as card protection, credit protection on overdrafts, protection against fraudulent transactions.

This will also benefit the insurance industry and help drive insurance penetration amongst under penetrated segments defined as those that cannot meet the qualifying balance criteria of banks.

Overall, the perspective has to move from cost-plus to customer-plus and customer-first.

The writer is Business Director, Cards and Payments, VP Bank-FE Credit, Vietnam. The views are personal

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