Penalties jump 10 times for SBI in govt business

Mumbai, May 17 | Updated: May 18 2006, 05:30am hrs
The Reserve Bank of Indias latest notification to change the fee-structure on government business has failed to cheer the countrys largest lender, the State Bank of India, which does government business worth a staggering Rs 8 lakh crore per annum, a leader in the category.

The reason being another regulatory provision which mandates banks to clear all local transactions in three days and outstation ones in five days. This regulation -- that came into effect last year -- has resulted in a 10-fold rise in penalties in the Mumbai circle of the SBI to Rs 10 crore during the financial year 2005-06 from a mere Rs 1 crore an year ago.

According to sources familiar to the situation, the Mumbai circle of the bank has notched up a business of about Rs 1.6 lakh crore in the FY 2005-06 and earned a commission of Rs 112 crore as against Rs 162 crore in the previous financial year.

The Reserve Bank of India, in one of its notification on July 25, 2005, had changed the commission system to transaction-based from value-based.

According to the circular, the banks involved in government business would get a fixed amount, Rs 45 for receipts and Rs 50 for payments (other than pension) irrespective of the value of the transaction as against Rs 11.8 per Rs100. As a result, the banks saw a steep decline in the commission. The regulator has once again changed the method, but only for payments to 9 paise per Rs 100 turnover.