SBI’s ‘Monthly Average balance’ : A Tool To Penalise Poor For Being Poor

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    SBI’s ‘Monthly Average balance’ : A Tool  To Penalise Poor For Being Poor
A financial crisis in running in India Due to High NPA, Bad loans etc.So Government , RBI and other financial institutions are taking major steps to recapitalize the economy . State Bank Of India has reviewed its service charges, which is in effect from date 1st April 2017. It has increased service charges for different services. The most significant point is, it has reintroduced the penalty for not maintaining ‘Monthly Average Balance’ requirement, after a gap of five years.
According to State Bank Of India, Failure to maintain monthly average balance in saving/current accounts will lead to penalty upto RS 100/- + GST.
This charge varies on the basis of nature of area and amount of shortfall. In Metro cities Minimum Account Balance requirement is RS 5000/-, while, in urban and semi urban areas Minimum Account Balance requirement is RS 3000/- and RS 2000/- respectively. And in Rural Area Minimum Account Balance requirement is Rs 1000/-.

Below is charge for not maintaining monthly average balance for current account holders

Source: State Bank of India website

Charge for not maintaining monthly average balance for saving bank account holders.

Source: State Bank of India website.

In its  service charge table  State Bank Of India has written that Reserve Bank Of India Has permitted it. Actually in RBI notification dated November 20, 2014 with title ‘’levy of penal  charges on non maintenance of minimum balance in savings account” RBI has described the rules to implement minimum balance requirement according to this notification levy of charges for non maintenance of minimum balance in savings bank account shall be subject to the following additional guidelines. According to RBI notification dated November 20,2014.
(i) “In the event of a default in maintenance of minimum balance/average minimum balance as agreed to between the bank and customer, the bank should notify the customer clearly by SMS/ email/ letter etc. that in the event of the minimum balance not being restored in the account within a month from the date of notice, penal charges will be applicable.”
(ii) “In case the minimum balance is not restored within a reasonable period, which shall not be less than one month from the date of notice of shortfall, penal charges may be recovered under intimation to the account holder.”
(iii) “The policy on penal charges to be so levied demay be decided with the approval of Board of the bank.”
(iv) “The penal charges should be directly proportionate to the extent of shortfall observed. In other words, the charges should be a fixed percentage levied on the amount of difference between the actual balance maintained and the minimum balance as agreed upon at the time of opening of account. A suitable slab structure for recovery of charges may be finalized.”
(v) “It should be ensured that such penal charges are reasonable and not out of line with the average cost of providing the services.”
(vi) “It should be ensured that the balance in the savings account does not turn into negative balance solely on account of levy of charges for non-maintenance of minimum balance.”

Incidence of monthly average balance
The incidence of monthly average balance is on normal saving accounts and current accounts

Exempted Accounts
Pradhan Mantri Jan Dhan Yojana account, financial inclusion account ,basic Savings Bank deposit account,  Pehla Kadam and Pehli Udaan account - up to age group of 18 ( primary account holders),
And pensioners of all categories including recipient of social welfare benefits are also exempted.

History
Monthly average balance was working till 2012. For State Bank Of India saving accounts, before 2012 has to maintain at least Rs 1000/- failing to which led to a non maintenance charge of Rs 225/- per month.
It was abolished by State Bank Of India  in 2012 for the purpose of attract new customers.

Aim of SBI to implement monthly average balance.
According to Rajnish Kumar, managing director of State Bank Of India , they are trying to cover some of operational cost like linking account number to Aadhar card is a expensive work and they have invested a large amount in technology.
But State Bank Of India  is mainly trying to cover the losses due to NPA and Merger of banks.
Revenue Generated by monthly average balance charge.
According to a RTI query, state bank of India realized 235.06 crore as penalty till June end from 388.74 lakh accounts. SBI is assuming to earn Rs 2000/- crore from monthly average balance charge, in financial year 2017-18.

Role of NPA in loss of SBI

NPA  means non performing assets.
For banks whatever banks give out as a loan to people is termed as asset, that is Principal plus interest.
In terms of bank NPA are the amount that someone don't pay by a particular installment for a continuous period of 90 days  then it is called as NPA.
NPA has three categories
  1. Sub standard assets
  2. Doubtful assets
  3. Loss assets
RBI definition of NPA: An asset including a leased asset become non performing when it ceases to generate income for bank. SBI’s gross NPA ratio has risen significantly to 6.90 % in 2016-17.
State Bank Of India Net NPA ratio has also Rises significantly from 2.12% in 2014 15 to 3.71% in 2016-17.
Source: SBI Annual Report 2016-17.


actually this NPA  raised due to loan given by State Bank Of India  to big corporates like Mallya, Jaypee Group etc. They got loans from banks but they are not able to repay, so Bank like State Bank Of India  are in pressure to cover the NPA.
State Bank Of India  wrote off loans owned by wilful defaulters in November 2016 worth 7016 crore including loans of Mallya , Surya pharmaceuticals etc.
So the money which State Bank Of India  is wrote off is like a loss to SBI.
Merger of associate banks.
According to a statement of Arundhati Bhattacharya, the chairperson of state Bank Of India , merger of associate banks and Bharatiya Mahila Bank costed around 3000 crore.
And in an article by R Krishnamurthy financial year 2016-17 was a bad Year for all associate banks. Their collective Loss of 2016-17 was 11865 crore. More than profit earned by State Bank Of India. Also NPA of associate banks is quite high.





Source:SBI analyst presentation Quarterly results Q1FY18

Handling of Pradhan Mantri Jan Dhan Yojana account

In Pradhan Mantri Jan Dhan Yojana till 20 September 2017 a total of 24.43 crore of account was opened by public sector banks and it beer at total deposit up 528 74.07 crore rupees according to the data it has an average up 2164. 3 rupees per account and most of the money is deposited after demonetization. Since there is less money in Pradhan Mantri Jan Dhan Yojana accounts ,so State Bank Of India  can lend less money and will earn less interest .Handling charges of these accounts are quite same as other accounts. So the Bank earns very less profit or in some cases loss with Pradhan Mantri Jan Dhan Yojana accounts.

Linking of account with Aadhaar number

According to Rajnish Kumar, managing director, of State Bank Of India, government has ordered Bank to link account number with Aadhaar number by the 31st December 2017. There is 40 crore savings account linking of Aadhaar number is a very costly process

Most of people has already holding accounts so there is few number of people who don't have account they don't have account because of their lack of interest in it so the aim of abolishing I'm a minimum average balance in 2012 to get new customers is almost satisfied.

How SBI can raise money for lending
State Bank of India is relatively running in losses there is three ways for SBI to get money to lend  if Government and RBI don't intervene
  1. State Bank of India own capital
  2. Borrowed money
  3. Money from customers.

To lend money from SBI’s  own capital  Since SBI capital is already low then the requirement for SBI can't land more money through its capital.

Borrowed money
If State Bank of India borrows money then it has to repay to its lenders with interest.

So if it doesn't get bailout package from government Reserve Bank of India it has only way to arrange money is from its customers.

SBI decided to extract revenue from its customers.
SBI is imposing certain restrictions on its customers. These restrictions are ,
1. number of times one can submit withdraw money from his account
2. Number of ATM transactions allowed
3. DD Commission. etc

Conclusion
So State Bank of India has risen  its service charge to extract money from its customers.
Thus, State Bank in Bank of India is using the way which will affect its middle class and poor class customers .By implementing monthly average balance State Bank of India is charging its poor customers for being poor. State Bank of India is trying to cover it's losses done by corporate borrowers   like Vijay Mallya and JP Group by extracting money from poor in the form of monthly average balance and other service charges.

State Bank of India is repeatedly saying that if minimum balance is not kept in account they are unable to recover cost of maintaining the accounts.
But previously banks required to maintain 2 ledger books for each separate account per year but now they have moved to digital platforms so the cost of maintaining digital ledger  book is very low because it takes very less space in hard disc of computer so it is clear that the cost of handling ledger is currently lower than previous years .Actually they are trying to cover the charges occurred by non performing assets merger of associate banks and Bharatiya Mahila Bank etc from charging poors .

Role of GST in giving pain to poors
Before 1st July, if an account falls under non maintenance of Monthly Average Balance then it has to pay penal charge( Decided by bank)+ service tax. Then services were taxed at rate of 15%(consolidated). But from 1st july after implementation of GST banking services are tax under 18% tax rate. Hence GST increased a burden of 3% on such a account that falls under non maintenance of monthly average balance criteria.




UPDATE
After receiving feedback from customers on monthly average balance State Bank of India lowered minimum balance requirement to 3000 rupees per account in Metro areas .
Earlier it was 5000 rupees per account . SBI also revised downward charges for not keeping the said balance.
It will be applicable from October 2017. SBI exempted accounts of minors, pensioners, and beneficiaries of social benefit scheme from monthly average balance .Penalty for  not maintaining monthly average balance is also revised ranging 20 to 50%among all groups and categories the range of charge will be Rs 20 to 40 for semi urban and rural centre and for Metro and urban centres it will be Rs of 30 To Rs 50.

References

  1. SBI hikes minimum balance to Rs 5,000 for savings account in metros(2017,April 3), Livemint. Retrieved from www.livemint.com

  2. After 5 years Karma SBI to change for breach of minimum balance from April (2017, March 5),Thehindubusinessline. Retrieved from www.thehindubusinessline.com
  3. SBI to penalise account holders for non maintenance of minimum balance from today : 5 things you need to know(2017, April 1), Indian Express. Retrieved from www.indianexpress.com.
  4. Levy of panel charges on non maintenance of minimum balance in savings bank accounts (2017, November 20), Reserve Bank of India. Retrieved from www.rbi.org.in
  5. SBI lowers minimum balance requirement to Rs 3000/-, cuts penalties(2017, September 25), livemint. Retrieved from www.livemint.com
  6. SBI waives minimum balance for saving accounts (2012, July 04), The Hindu. Retrieved from www.thehindu.com
  7. SBI reviewing minimum balance for saving account (2017, September 17), The Hindu Business Line. Retrieved from www.thehindubusinessline.com
  8. SBI annual report 2016-17
  9. SBI reportedly writes off bad loans of Rs 7016 crore, Congress Raise Up issue in Parliament (2016, November 16), business standard. Retrieved from www.business-standard.com
  10. Merger of SBI associate banks to cost Rs 3000 crore:  Bhattacharya(2016,may 28), business standard. Retrieved from www.business-standard.com
  11. Krishnamurthy,R(2017, July 22),”public sector bank Merger”, economics and political weekly,vol 52 , issues no. 29

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