Usurious ways of out-of-line SBI branch; practice rampant in banks

Have you lately opened an account with the State Bank of India (SBI)? If not, be aware. You may be told opening a demat account (DA) along with the new savings bank account is now ‘mandatory’ and thus, you may end up gifting the SBI at least Rs 590 – annual DA charge – as it happened with my teenage daughter a few days back. When she protested that she wouldn’t be investing in stock markets, she was told that she would then have to take accident insurance (AI), which normally comes with salary accounts, as an alternate or she could very well discontinue the DA after a year. She opted for the first and signed off Rs 590.

While agreeing to cancel it later, the branch manager said new customers were always offered “some benefits” along with new accounts. Whether a DA account is a benefit for customer is beside the point. SBI, however, says it does not support this practice. In response to a questionnaire, an SBI spokesperson says a DA or AI was not mandatory with opening of a new account; that it was “first such an instance reported” to them and that they had issued instructions to “provide proper training” to their associates before being deployed.

Nevertheless, if you think, this is a minor issue, here is a back-of-the-envelope estimation of bankers’ extraction methods that have largely gone unchallenged. According to a reply in the Parliament, 6.37 crore savings accounts were added in 2018. If even 1 crore new account holders are misled into paying Rs 590 for a DA, the bank would have a windfall-gain of Rs 590 crore a year.

This is an illustration of a rampant underhanded banking practices targeting ordinary customers. A few more examples:

1) A 2021 study of IIT-Bombay found that the SBI collected Rs 300 crore from zero-balance accounts in five years – by levying Rs 17.7 for every debit transaction beyond four, which it considered unreasonable. Ironically, zero-balance accounts were started (during the previous UPA government) to provide banking facilities to poor/unbanked population without the requirement of a minimum balance.

2) In three years during FY17-FY19, public and private banks collected Rs 9,721.9 crore for not maintaining minimum balance in savings accounts – as the Rajya Sabha was told in 2019.

3) Between April 2015 and September 2018 (less than four years), the Lok Sabha was told that banks collected Rs 10,391.4 crore by charging for (a) not maintaining minimum balance and (b) using ATMs beyond free transactions.

Wait, there is more bad news. From January 1, 2022, ATM withdrawals beyond five free withdrawals at your bank and three (metros) to five (non-metro centres) transactions (financial and non-financial) from other bank ATMs will attract a higher cost. The RBI allowed the charges to go up from Rs 20 per to Rs 21 per extra transaction in June 2021.

Even to a senior citizen (who get higher interest rates than others), a fixed deposit with the SBI will deliver negative returns in FY22. That is because the SBI’s FD return is 5% for senior citizens (since January 2021) for a period of 36 months or 3 years, while the RBI monetary policy statement of December 8, 2021 says the inflation rate for FY22 is likely 5.3%.

The SBI’s savings accounts provide a return of 2.7%, for both up to and above Rs 1 lakh balances. With the RBI continuing with its interest rates (repo, reverse repo and bank rates) unchanged for the eighth consecutive time, personal savings and FDs with the SBI will continue to deliver negative returns for at least another two months.

Such banking activities are in stark contrast to the generous write-off of big loans to corporate entities. For example, SBI and its associate banks have written off Rs 2.2 lakh crore during the past five years between FY15 and FY20. The total NPA write-offs by scheduled commercial banks (SCBs) were Rs 8.7 lakh crore, of which public sector banks (PSBs) share was Rs 6.8 lakh crore, during the same period. The SBI is part of PSBs.

The RBI hasn’t updated its NPA write-off data for FY21 yet. Even its annual report of FY21 is silent, a reversal of the earlier practices. The SBI chairman disclosed in May 2021 that the SBI wrote off Rs 17,590 crore in FY21, without clarifying how much its associate banks wrote off.

Such secrecy over NPA write-offs to big corporate entities is not unusual. Banks write off loans of even “wilful defaulters”. The RBI disclosed in February 2021, in response to a RTI query, that banks wrote off Rs 62,000 crore loans of top 100 wilful defaulters in FY20. In FY19 such write-off amounted to Rs 58,375 crore. The total write-off of all wilful defaulters is not known.

Most big bank defaulters don’t go to jail as most big-ticket banking frauds come to notice after the accused have fled the country (the likes of Vijay Mallya and Nirav Modi are many). Once in a while the Pandora Papers findings come to public notice detailing how many big defaulters and bankrupts have stashed away millions of USD in tax havens abroad.

On the other hand, the RBI takes a serious view of farmers’ loan waivers, calling it damaging to credit culture and fiscal management. Its 2019 ‘Report of the Internal Working Group to Review Agriculture Credit’ dismissed farm loan waivers as “not the panacea” for farmers and worse: “In fact, they destroy the credit culture which may harm the farmers’ interest in the medium to long term and also squeeze the fiscal space of governments to increase productive investment in agriculture infrastructure.”

This is when farm loan waivers are paid for by state and central governments, whichever announces it, and hence, banks don’t lose money. In contrast, NPA write-offs is a net loss for the banks, damaging credit culture and fiscal management in true sense. The price of such write-offs is paid by ordinary taxpayers by way of (a) bank recapitalisation (b) bank bailouts and (c) cost of opportunity lost (the credit could have been deployed better).

The RBI’s Financial Stability Report of July 2021, which presents comparative GNPA ratios (gross NPA to total advances) for different sectors (in SCBs), shows that GNPA ratios of industry remains consistently higher than all others since September 2019 – agriculture, services and personal loans.

If banks are to perform better, they need to be tougher on big and consistent loan defaulters, rather than those with zero-balance accounts or students opening their first bank accounts.