Why Are Public Sector Banks ‘Penalising the Poor’?
The Wire
Jan 16, 2018
The Centre for Financial Accountability (CFA), a network of people’s movements, has said banks charging a penalty for not maintaining a monthly average balance is directly affecting the poor, who are often unable to maintain the minimum balance because of their financial compulsions.
In 2012, India’s largest public sector bank, the State of Bank of India (SBI) had withdrawn the clause involving a penalty charge for not maintaining a minimum account balance (MAB). This penalty was re-introduced five years later, in April 2017. This meant that savings accounts in metropolitan centres would have to maintain a balance of Rs 5,000, and urban centres, a balance of Rs 3,000. Consequently, the bank has mopped up a revenue of Rs 1,771 crore in penalty charges, an amount that exceeds the bank’s second-quarter (July-September) net profits of Rs 1,586 crore.
Criticising the move for “penalising the poor”, the CFA, has said in public statement, “These customers are being doubly burdened, as the people who are not in a position to maintain a minimum balance are being penalised by the banks through imposing a fine for it.” The statement was signed on January 4 by various individuals and organisations such as Narmada Bachao Andolan, National Alliance for People’s Movements, Amulya Nidhi and Gopal Krishna, among others.
Pointing out that operational losses from non-performing assets were higher, leading to heavy loan write-offs by banks, CFA demanded that public sector banks retract this clause, adding that it was “highly unethical” on the part of public sector banks, such as SBI, to extract a penalty from financially weaker account holders for their inability to maintain a minimum balance, instead of recovering the loans given to corporate customers.
It also criticised government policies for “compelling” citizens to open bank accounts and discouraging cash transactions on the one hand, while forcing banks to levy such charges to cope up with the costs of such policies on the other.
“Linking of Aadhaar-PAN with bank accounts is one such (decision), after the disastrous demonetisation,” the statement read, adding that the “the inordinate push for linking Aadhaar to bank accounts, even while the Supreme Court is hearing the matter, shows the level of disregard this government has for law and our country’s legal institutions like Supreme Court.”
The statement also termed the comments by SBI’s managing director Rajnish Kumar in September 2017 as “disturbing”. Kumar had said that the bank planned to raise Rs 2,000 crore during the present fiscal year, through penalty charges for maintaining a minimum account balance, “which it intended to use partly for Aadhaar-PAN linking, along with covering for other losses in banking operations.”
CFA pointed out that after the SBI withdrew the MAB penalty clause in May 2012 with the aim of widening its customer base, “many people shifted their accounts to SBI from the private banks, as the private banks were levying a heavy charge for the minimum balance requirement.” SBI reintroduced this penalty in April 2017 after RBI permitted banks to levy charges if customers failed to comply with the minimum balance limit, a move that has allegedly hit the bank’s financially weak customers the hardest.
Meanwhile, SBI has exempted pensioners, social aid beneficiaries and minors from October 1, 2017 onwards from this clause. In addition, the 13 crore basic savings accounts and Pradhan Mantri Jan-Dhan Yojana accounts have also been exempted from such penalties.
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