If the State Bank of India earned Rs 1,771 crore as penalty charges from accounts that did not maintain their minimum balances in April-November 2017, as The Indian Express reported earlier this week, and this amount exceeded its second-quarter profit, the amount does look usurious. Indeed, a paper by IIT Bombay’s Mathematics professor Ashish Das uses data to highlight another problem, that the banks charge the highest penalties (in percentage terms) to those who can least afford them. Das points out that SBI charges penalties of Rs 30/40/50 for different brackets of Rs 0-1,500, Rs 1,500-2,250 and Rs 2,250-3,000. Take the mid-point of each range and apply the monthly penalty and it works out to 4% for the first slab, 2.13% for the next and 1.9% for the third. Though the rates differ for each bank, by and large, all those analysed by Das show a similar regressivity in their penalties. Das contrasts this with the rate in the inter-bank call market—where banks borrow money in case their balances fall short due to, say, a customer not maintaining her minimum balance—and concludes that they are nothing but extortionary; indeed, he points out, customers who do not maintain their minimum balances (there is no credit risk) end up paying interest rates higher than on even high-risk credit-card debt.
Put that way, RBI certainly needs to intervene, especially since its directives talk of need for proportionality. Except, this proportionality is hardly found anywhere. Smaller money transfers in the post office attract proportionately higher charges, large corporates get better hotel and airline rates, mobile and other data packages cost less per GB when you buy bigger ones, and the examples can be multiplied manifold. So, if banks are willing to give a better deal to bigger depositors, it is because they also earn more from their deposits which tend to be more sticky and sizeable. Also, banks have to pay for maintaining costly branch networks, ATMs, cheque books and other facilities and, in the case of public sector banks, even going to remote areas to set up no-frills/Jan-Dhan accounts and servicing them despite them having minuscule deposits. So, while RBI is examining whether they have violated its guidelines of proportionality and the government cracks down on them to lower the minimum balances—and penalties for not maintaining them—it needs to see how this expenditure is to be amortised; if it is to be absorbed, few banks will want less well-heeled customers. The economics change with e-banking since many of the traditional costs such as on branch banking are eliminated—Kotak’s 811 has no minimum balance. So, while there may be a case for lowering some penalties the traditional banks charge after a thorough study, it would be foolhardy to condemn them outright.