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| Date: 02/02/2007 | | Report of the Working Group to formulate a scheme for ensuring reasonableness of bank charges | |
RBI/2006-2007/245
DBOD.No.Dir.BC. 56 /13.03.00/2006-2007
February 2,
2007
All Scheduled
Commercial Banks
(excluding RRBs)
Dear Sir,
Report of
the Working Group to formulate a scheme for ensuring
reasonableness of
bank charges
As banks
may be aware, as announced in the Annual Policy Statement for the year 2006-2007,
in order to ensure fair practices in banking services, Reserve Bank of India
had constituted a Working Group to formulate a scheme for ensuring reasonableness
of bank charges and to incorporate the same in the Fair Practices Code, the
compliance of which would be monitored by the Banking Codes and Standards Board
of India (BCSBI). The Working Group has since submitted its report
and the same has been placed on our website (www.rbi.org.in). The recommendations
of the Working Group have been examined and accepted by Reserve Bank of India
with certain modifications.
2. Action
required to be taken by banks is indicated under the column ‘action points for
banks’ in the Annex to this circular.
Yours faithfully,
(P.Vijaya
Bhaskar)
Chief General Manager
Annex
Recommendations
of the Working Group to formulate a scheme for ensuring reasonableness of bank
charges
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Sl.
No.
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Recommendations
of the Working Group
as accepted
by RBI
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Action
points for banks
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1
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Identification
of basic banking services
Banks
have to follow two broad parameters for identifying the basic banking
services:
(A)
Nature of transactions
- Banking services
that are ordinarily availed by individuals in the middle and lower
segments, will be the first parameter. These will comprise services
related to deposit/loan accounts, remittance services and collection
services.
- When the above
transactions occur in different delivery channels, for the purpose
of pricing, they may be treated on a separate footing.
(B)
Value of transactions
Low
value of transactions with customers/public up to the ceiling as given
below will the second parameter:
- Remittances up
to Rs.10,000/- in each instance
- Collections below
Rs.10,000/- in each instance
(Foreign
exchange transactions valued up to $ 500/-)
Based
on the two parameters, the Working Group recommends enumeration of the
following as the basic banking services:
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Sr.No.
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Service
Relating to deposit accounts
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1
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Cheque
book facility |
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2
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Issue
of Pass Book (or Statement)/Issue of Balance Certificate |
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3
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Issue
of duplicate pass book or statement |
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4
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ATM
Cards |
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5
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Debit
cards (electronic cheque) |
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6
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Stop
payment |
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7
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Balance
enquiry |
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8
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Account
closure |
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9
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Cheque
Return – Inward (cheque received for payment) |
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10
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Signature
verification |
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Relating
to Loan Accounts |
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11
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No
dues certificate |
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Remittance
Facilities (including through other banks) (Rupee or foreign exchange) |
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12
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Demand
Draft- Issue |
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13
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Demand
Draft- Cancellation |
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14
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Demand
Draft- Revalidation |
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15
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Demand
Draft- Duplicate Issuance |
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16
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Payment
Order – Issue |
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17
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Payment
Order – Cancellation |
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18
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Payment
Order – Revalidation |
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19
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Payment
Order – Duplicate Issuance |
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20
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Telegraphic
Transfer – Issue |
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21
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Telegraphic
Transfer-Cancellation |
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22
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Telegraphic
Transfer – Duplicate Issuance |
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23
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Payment
by Electronic Clearing Services (ECS) |
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24
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Transfer
by National Electronic Fund Transfer (NFET) and Electronic Funds
Transfer (EFT) |
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Collection
facilities
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25
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Collection
of Local cheques |
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26
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Collection
of Outstation cheques |
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27
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Cheque
Return-Outward (cheque deposited for collection) |
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The
above list is compiled only as a guide and the list may not be treated
as exhaustive. Banks, may at their discretion, include within the category
of basic services such additional services as they consider appropriate.
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Banks
are advised to identify the basic banking services on the basis of broad
parameters indicated by the Working Group.
The
list of services identified by the Working Group is only an indicative
one and banks may, at their discretion, include within the category
of basic services such additional services as they may consider appropriate.
.
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2
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Offering
basic banking services outside the scope of bundled products
Some
of the banks do not levy charges on each individual product or service.
Products and services are bundled and offered to a customer as a composite
offering. The bank recovers the cost of these operations through net
interest income. The bank achieves break-even levels through higher
average balances in customer accounts which yield healthy interest margins
or by imposing charges for keeping inadequate balances.
In so far as the basic services are concerned, the banks’ objective
should be to ensure that these are made available to the users at reasonable
prices/charges and towards this, the basic services should be delivered
outside the scope of the bundled products.
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Banks
may implement the recommendations of the Working Group on making available
the basic banking services at reasonable prices/ charges and towards
this, delivering the basic services outside the scope of the bundled
products.
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3
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Principles
for ensuring reasonableness in fixing and communicating the service
charges
- For basic services
to individuals, the banks will levy charges at the rates that are
lower than the rates applied when the same services are given to non-individuals.
- For basic services
rendered to special category of individuals (such as individuals in
rural areas, pensioners and senior citizens), banks will levy charges
on more liberal terms than the terms on which the charges are levied
to other individuals.
- For the basic
services rendered to individuals, banks will levy charges only if
the charges are just and supported by reason.
- For the basic
services to individuals, the banks will levy services charges ad-valorem
only to cover any incremental cost and subject to a cap.
- Banks will provide
to the individual customers upfront and in a timely manner, complete
information on the charges applicable to all basic services.
- Banks will provide
advance information to the individual customers about the proposed
changes in the service charges.
- Banks will collect
for services given to individuals only such charges which have been
notified to the customer.
- Banks will inform
the customers in an appropriate manner recovery of service charges
from the account or the transaction.
Banks
will without fail inform the customers in all cases when a transaction
initiated by the bank itself results in or is likely to lead to a shortfall
in the minimum balance required to be maintained.
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The
principles for ensuring reasonableness in fixing and communicating the
service charges, as enunciated by the Working Group, may be adopted/
followed by banks.
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4
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Disclosure
and notification of service charges
It
is imperative that the customers are made aware of the service charges
upfront and the changes in services charges are implemented only with
prior notice to the customers. For changes made in the charges, the
notice to customers need not necessarily be to each individual customer,
as it would be costly and impractical. The Working Group finds that
for proper disclosure, the banks would do well to fully recognize the
following needs of the customers and take steps to ensure that these
are met:
- Disclosure of
the service charges:
- Banks may consider
the option of carrying out a one-time publicity of the
service charges so that all customers are made aware of the charges;
- The need for
communicating the service charges to the new customers at the time
of beginning of the relationship.
- The need for
displaying the charges in the notice board at the branch and advertising
in newspapers, so as to disseminate information to the customers/public,
in addition to display on the website as per Reserve Bank instructions.
- The need for
using appropriate method for communicating the service charges to
customers of different profiles.
(B)
Notifying the changes effected in the charges
- The need for
effecting any change in the charges only with prior notification to
the customers of at least 30 days.
- The need for
providing an option to the customer to accept the change and if not
accepted, to exit from the relationship with the bank within the above
30 days without any cost.
- Banks may consider
the option of advertising the changes in newspapers.
- The need for
including the information regarding the changes in any communication
sent to the customer.
- The need for
displaying prominently in the notice board as well as the website
all the changes effected in the preceding 30 days.
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Banks
may take steps to ensure that customers are made aware of the service
charges upfront and changes in the service charges are implemented only
with the prior notice to the customers.
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5
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Other
recommendations
- Deficiencies
in the redressal of grievances about service charges
Deficient grievance redressal in the banks, including a process of
prolonged correspondence, always leads to complaints being escalated
to the Banking Ombudsman/Reserve Bank of India. Banks are therefore
required to have a robust grievance redressal structure and processes,
to ensure prompt in-house redressal of all their customer complaints.
(ii)
Financial Education
The
Working Group recommends that full-fledged information on bank products
and their implications are to be disclosed to the customers so that
the customers can make an informed judgment about their choice of
products.
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The
recommendations of the Working Group relating to redressal of grievances
and financial education, as brought out in column 2, may be implemented
by banks.
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