Earlier this year in May, I had sent a letter to the Honorable Prime Minister Shri Narendra Modi ji, about the profiteering by Indian banks and had raised over 30 points in this regard. The Prime Minister’s Office turned my letter into a petition and sent me a reply, sending a copy to the Ministry of Finance, asking it to ‘take action as appropriate’. Today morning, I received a letter from the Reserve Bank of India (RBI), India’s central bank. This letter addresses each point raised in my letter. Here is the letter. It is heartening to see such agility on the part of the government in addressing the concerns and suggested changes in financial policies put forth by a citizen. RBI has addressed each point separately. I have summarized the reply towards the end of this post.
It is apparent from their letter that the Ministry of Finance and the Reserve Bank of India have provided considerable autonomy to private banks to determine their service charges. While there are guidelines to make the bank charges fair for the customer, there is considerable latitude within these guidelines given to the banks. This, in my opinion, is being exploited by some players at the cost of the customer. This accounts for excessive charges in several areas. Net interest margin is also an area where a lot of freedom is given to banks. The letter from RBI states that ‘banks are not permitted to restort to any lending below the Base Rate’. It is ironic that the central bank has set a minimum rate below which banks cannot lend to us. At this point, there is no clarity to me personally about the maximum interest rate that banks can charge for lending. Many credit card companies run by banks seem to charge between 24% and 36% per annum while the average fixed deposit rate is 8-10% per annum for us.
The Reserve Bank of India cites some circulars in addressing my point about fixed deposit schemes being unfair to customers and bank charges, especially relating to pay orders being excessive. I had pointed out that some banks such as HDFC charge as much as Rs.15,000 for a pay order of Rs.50 lakhs when it is just a bank entry and it takes the same time to make a pay order for Rs.500 as it takes to make a pay order of Rs.50 lakhs. Circulars have been cited by RBI for inward remittance charges that I consider excessive and other concerns expressed in my letter.
I expressed the view that banks were overcharging for foreign currencies, keeping a large gap between the buying and selling rates of foreign currency. This has been forwarded to the Foreign Exchange Department, Central office for examination. I had pointed out that Real Time Gross Settlement (RTGS) charges were excessive and in some cases varied with the amount of money transacted. This has been forwarded to the Department of Payment and Settlment Systems, Central Office for examination.
I had urged the Prime Minister to back young entrepreneurs by giving them soft loans. This query has been forwarded to the Rural Planning and Credit Department, Central Office.
I had pointed out that it is very complicated to send funds overseas, for entrepreneurs and that sops to entrepreneurs for export of services shouldn’t involve too much red tape. These queries have been forwarded to the Foreign Exchange Department, Central Office for examination.
Some of the queries relating to raising capital in financial markets, excessive demat charges by banks, excessive stock brokerage by banks have been forwarded to the Securities and Exchange Board of India (SEBI).