Retail customers of banks, who have to pay exorbitant charges and penalties for basic services and pre-payment of loans, are in for some good news. The Reserve Bank of India (RBI) is considering a ceiling on such charges. Worried by the refusal by some banks to rationalise charges despite several reminders, RBI is now taking the bull by the horns.

For example, some banks charge as high as Rs 750 (plus taxes) for failure to maintain a minimum balance in savings accounts. Similarly, pre-paying home loans can attract a penalty of 2 per cent on the outstanding amount.

There’s more. Some banks charge a flat Rs 50 for demand drafts, even in rural areas where drafts are generally not in high denominations. Depositing cash at a branch other than the base branch is charged Rs 100, irrespective of the amount deposited. Some banks charge Rs 100 to issue duplicate bank statements.

At present, cash withdrawal from other banks’ ATMs beyond five transactions is the only service charge that has been capped at Rs 20. This was done by RBI last year, as banks charged as much as Rs 55 for cash withdrawal from non-base bank ATMs.

The central bank has referred the issue to a high-level customer committee, which was set up in June to look into the issue of customer services offered by banks. The committee, which is headed by former Securities & Exchange Board of India Chairman M Damodaran, will submit its recommendations in January.

The Damodaran committee has also been entrusted with a larger mandate of suggesting sweeping reforms. In an interaction with committee members, RBI Governor D Subbarao reportedly said the committee’s suggestions should encompass the needs of the next 10 years.

The move to cap charges is a significant shift in RBI’s stance of not involving itself in regulating fees and interest rates of individual banks. However, RBI now also feels that since banking is a highly regulated service industry with very stiff entry norms, customer service cannot be entirely left to market forces.

Rather, it is the regulator’s duty to protect small customers. “We will make it clear that such steps will be only for small savers and retail customers and not for corporate entities,” said a central bank official.

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