It is a travesty that banks hand out loans indiscriminately while penalising account holders for not maintaining a minimum balance
Indian banks in the public and the private sector never had it so easy. They did not have to worry about efficiently carrying on their operations by engaging in borrowing for lending. When all of us were coaxed and threatened by the government to open new deposits in banks in the name of formalisation of the economy, the banks were smiling. As we diligently did so, the banks indiscriminately loaned to big corporates without following appropriate protocols. The big fish that borrowed big sums did not end up repaying. Banks didn’t give a damn, did not worry about their indiscriminate spending nor worry about cost-cutting or recoveries. Banks subsequently charged us on every withdrawal we made from our own accounts, charged us for depositing money in our accounts, charged us diligently for every service which we may or may not have opted for, and finally penalised us royally for not maintaining the minimum balance with them!
Big loot
Astonishing but true, in the last four years, 24 state-owned and privately-run banks have collected over ₹11,500 crore from their customers for not maintaining a minimum balance in their accounts. Bank customers need to have an Average Monthly Balance (AMB) in their savings accounts, failing which customers have to pay certain penalty charges. According to information provided by Minister of State in Finance Shiv Pratap Shukla, 24 PSB banks collected close to ₹5,000 crore as penalties in the financial year 2017-18 from customers on account of AMB. Interestingly, the penal sums collected by three large PSBs in 2017-18 were around 40 per cent of the total charged by the remaining 21 PSBs.
It was certainly not a matter of pride for the State Bank of India (SBI) to earn ₹2,400 crore in financial years 2017-18 just by way of penalising its customers. When it collected ₹1,771 crore for the first six months, April-November 2017, as penalty for failing to maintain AMB, this amount was nearly half of the profits earned by the bank for that period. The bank had defended the rise in AMB limit and penalty to compensate the cost of maintaining the Prime Minister’s Jan Dhan Yojana accounts. This was another insult to injury. To bring in more customers, the banks penalised the existing ones.
SBI was not a loner in this daylight and formal loot. HDFC earned as much as ₹590 crore, Axis Bank earned ₹530 crore while ICICI Bank grossed ₹317 crore by way of such penalties. Punjab National Bank (PNB) collected ₹211 crore. The entire exercise seems so absurd. Instead of incentivising opening and operating more accounts by those at the bottom of the pyramid, banks turned them away by forfeiting what little they had. Those who were unable to maintain AMB in their accounts were certainly not the elite ones. The very same people who were cajoled into joining the banking system by spending crores of rupees on advertisements were subsequently cheated and looted.
Robbing Crooks
It may be intriguing for readers to know about the second dubious achievement of the SBI after topping the list in grossly penalising customers. SBI clocked a massive net loss of ₹7,718 crore in the fourth quarter of 2017-18. Same is the case for major banks and this can be attributed to rising bad loans from influential wilful defaulters as the percentage of bad loans in 2017-18 increased to 10.91 percent of the total loans from 6.9 percent in 2016-17. This reminds me of the story of Robin Hood who robbed the rich to help the poor. The new age banks thus turned out to be the ‘Robbing Crook’ of modern times, disadvantaging the poor and marginalised to benefit the rich and powerful.
Given the accusation made by the Prime Minister of having inherited the NPA crisis from UPA times, it is pertinent to note that the NPAs stood at 3.8 percent of the total loans in 2013-14 whereas it nearly doubled to 7.5 percent by 2015-16. Going by the same logic, if the penalty charged from customers has increased, it would also imply that banks are trying to cover up their losses due to rising NPAs by taking an easy way out of charging customers for failing to maintain minimum balance. This is nothing but a cascading effect of rising bad loans. More shockingly, in the last three years, banks have squandered close to ₹70,000 crore by way of various scams attributed to bank guarantees and corruption in loan disbursements due to banker-corporate nexus. The worst part is that banking related frauds are on a wild spree now more than ever before. In the year 2013-14, there were 4307 cases reported, amounting to ₹10,171 crore. Amidst the claims that the government has now exercised tight controls, by the end of 2017-18, as many as 5879 cases have reportedly cost us ₹32,000 crore. In the same year, around 273 cases of banking-related crimes were reported in cooperative and rural banks compared to 165 cases booked last year. Instead of targeting millions of customers throughout the country and catching them by their necks for not maintaining the AMB to recover ₹11,000 crore, banks would have gained considerably by just closely monitoring not more than a dozen bad accounts and saving ₹19,700 crore. Similarly, around 139 account holders, had defaulted ₹1000 crore each. It couldn’t get more shameful than this. It is unfortunate for all of us if banks having around ₹10.40 lakh crore of its booty at stake due to bad loans out of the ₹54 lakh crore disbursed as on March 2018 earned 11,000 crore in the last four years only by way of penalties from its small depositors in the last four years
The writer has a Post Doctorate in Economic Policy and PhD from IIT Bombay in the subject of Financial Economics. He can be reached at: mskamat@gmail.com
