India PSU Banks hurt the Poorest

By pjain      Published June 23, 2020, 8:10 p.m. in blog Invest   

India PSU Banks hurt the Poorest

Promises of Bank Nationalization - Stability, Easier Loans

Banks were nationalised with the objective of making banking available to everyone, especially the poor and the marginalised.

PSUs dominate - Omni-presence, Marketshare, Govt-backs-trust

In the last five decades public sector banks have emerged as one of significant institutions in contributing and shaping the entire economy of the country.

The vast number of the country’s population opened their accounts with public sector banks because there was a considerable level of trust and accountability in government’s owned financial institutions.

Unions slow down Technology adoption, raise bank costs

PSU Banks have poor service levels

Customers seek Non-Bank Alternatives

Some customers might move to other forms of banking system such as payment banks, small banks or other non-banking financial companies, etc. However, a key factor now is the level of bank charges imposed by that particular bank as their first concern evern more than its service levels.

PSUs and Cooperative Banks Seen as Unsafe - Failed Customer Trust

Money in Banks - How Safe is it?

In 2019 on, banks dont seem to be that place where people can keep their money safe.

Level of Trust in PSU and other banks over the Years

The vast number of the country’s population opened their accounts with public sector banks because there was a considerable level of trust and accountability in government’s owned financial institutions.

Bank Charges Hurt the Poorest

Lots of Charges Added as PSUs struggle with NPAs

Numerous service charges have been newly levied by banks since 2016 and Modi election.

The objective is to recover from losses (NPA’s) at any cost which has been caused by writing off the huge loans of corporate firms and industries.

These are the charges introduced by banks for almost all the basic services such as for SMS alerts, cash withdrawal/deposit, balance inquiry from ATMs, issuance and reissuance of debit card, debit card annual charges, for any mobile number, address or other KYC related changes, for depositing money at cash deposit machines, ATM pin generation, cheque book etc.

Every Transaction reduced by charges

Now the depositors have to pay a charge on each and every financial and non financial transactions and services as well. Now there is not a single service that we can say is offered without charging, making it extremely discriminatory for the poor and deprived sections of the society like farmers, students, daily wage laborers, street vendors etc.

Modi's Schemes, Covid-19 Payments Looted, Hurting the Poorest

  1. People from lower middle class and poorer economic background will be forced into the banking system to avail government benefits but will be looted with bank charges.

  2. On 24th March, 2020, Modi, the Prime Minister of India has declared the nationwide lockdown due to global widespread of Covid 19 - but this caused huge dislocations and near-starvation conditions for the poorest, migrants and small street vendors, etc. As a relief measure; some State Government has announced to transfer small token amounts eg a relief fund of Rs. 1000 in their bank accounts. But often the entire relief fund has been deducted in the name of bank’s service charges. There was a partial relief of 3 months on ATM charges - but that is not solving the problem for the poorest.

Nickel and dime charges and levied for maintaining required minimum balance, cash withdrawal/deposit, SMS alert, balance inquiry, passbook update, etc.

Bank charges vary greatly by Bank

The urban and rural poor will most likely have bank account in PSUs.

Canara bank which deducts Rs. 40 for not maintaining the minimum balance of Rs.1000 per month, plus Rs.15 for SMS alerts per quarter, and Rs. 120 for annual debit card charges. All these charges will deduct at least Rs. 660 from their accounts in a year (excluding withdrawal transaction and other services charges) who usually have zero balance or a balance which is always less than Rs. 500. And so every month’s deduction of these charges changes their accounts into negative balances and gradually declines the total income of each individual.

Punjab National Bank (of ill-fame on $2 B Nirav Modi scam) is one of the worst PSUs. It charges with the penalty of Rs.250 quarterly for not maintaining Rs. 2000 as minimum balance and this comes to Rs.1000 in a year, plus quarterly SMS alert charge of Rs. 15 and annual charges of Rs. 100 for debit card issuance by PNB. So in such a little or zero savings, just all these three charges will deduct at least Rs. 1160 from their accounts in a year and apart from these three compulsory charges, there are several other charges on transactions and for availing other services of banks.

Poorest - Bank charges really hurt low incomes

Auto Rickshaw operators average monthly income in metropolitan cities lies from Rs. 12000-15000 per month whereas in other urban cities it is Rs. 8000-10000 per month. Say top income in Delhi at 15,000/mo. Expenses monthly, rent-electricity Re 4000/mo, food Re 4000, health/misc Re 2000, sending home to family Re 4000, leaving barely Re.1000/mo of discretionary income or savings. In other areas like UP where the monthly expenses are less, the income would be far less too, resulting in a hand to mouth existence.

Minimum Balance Fees hit the hardest

Due to insufficient savings, these people cannot afford to keep minimum balance in their accounts.

The Modi government has even encouraged them to open their accounts under Jan Dhan Yojana with zero balance.

"robber" banks converting no-minimum balance accounts so they can loot poor

However the banks have started converting them into regular saving accounts and ultimately started charging them in the name of different services and penalties. Hence, these charges leave no money into their account and convert their balances into negative which immediately deducts money as penalty from their next month salary (whenever it credits into account). These charges are not only exhausting their savings but adversely putting them completely into the condition of financial distress.

Migrant have limited Literacy, Access to Banks and Accounts

The reality is that migrant workers don’t have any savings at all, and as in the Covid-19 had to walk thousands of miles with their families to return homes and have starved for days just because they don’t have single penny in their pockets.

Recently there have been several cases of labours and migrants workers whose almost entire relief fund got deducted ruthlessly in the name of non maintenance of minimum balance and other charges.

Customer Churn to get out of Highest Bank Charges amongst Banks

Is there a major shift of customer accounts to others in search of minimal bank charges and lower costs?

Or are all PSUs basically the same?

Private banks like HDFC, ICICI and Yes Bank - what level of choice do they offer?

Campaigns against Bank Charges

A ‘No Bank Charges’ campaign is run at demanding the removal of bank charges.



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