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Banking: Pains and gains

As if the rising interest rates were not worrying enough, now be prepared for the sting of higher service charges. The financial sector in the country has been battling rough weather for a while now.

Print Edition: September 18, 2008

Cost comparison
Service/facilityThenNow
Credit cards (interest)30-40%35-50%
Premature account closureRs 250Rs 500
Unblocking debit card0Rs 100

As if the rising interest rates were not worrying enough, now be prepared for the sting of higher service charges. The financial sector in the country has been battling rough weather for a while now. With a significant slowdown in credit growth and deposit rates going up, banks are scrambling for ways to plug their declining net interest margin. The most obvious way is to hike charges for services, be it cheque issuance, locker facilities or credit cards. In fact, most leading banks, private and public, have started announcing revised fees. This is the bad news. On the other hand, RBI is taking a host of steps to make banking customer-friendly. From allowing bonds as collateral for bank loans to allowing sleeping bank accounts to earn an interest, there is good news in the offing.

Forget the freebies: From unblocking a debit card and depositing cash in a branch other than your home branch to mobile banking, most bank services shall now incur a fee. You will also have to pay more for facilities like making a demand draft or getting a duplicate passbook. In fact, the fees for some products have been hiked by up to 50%. Kotak Bank was the first to announce a hike in its service charges, followed by the State Bank of India, the IDBI Bank, Bank of India and, most recently, ICICI Bank.

The last, ICICI Bank, is charging Rs 50 per demand draft up to Rs 10,000 and Rs 3 per Rs 1,000 thereafter, subject to a maximum of Rs 15,000. Till 1 August, the bank charged Rs 2 per Rs 1,000, subject to a minimum fee of Rs 50, and a maximum of Rs 10,000. On the other hand, SBI has decided to levy Rs 2 per Rs 1,000 deposited at a non-home branch from 1 September. Earlier, cash deposit up to Rs 50,000 at a non-home branch was free and millions availed of it as a means of sending money home. M.V. Nair, chairman and managing director, Union Bank of India, says, “Income from core banking operations are likely to suffer at least in the current financial year. So banks are on the lookout to increase their income.” To compound the problem, higher service charges also mean higher penalties. Apart from paying more for bounced cheques and premature closure of an account, you will have to watch out for new penalties.

Telling figures

Numbers speak louder than words. Money Today highlights some figures that have an immediate or long-term personal finance implication.

24.1%
is the increase in advance tax payments by corporate taxpayers in 2008-9 compared with that in 2007-8

90.6 lakh
is the number of telephone connections (wired/wireless) added in the country in July this year

46,000 crore
rupees is the amount invested by domestic institutional investors, of which insurance companies form a significant chunk, in Indian equities, till date this year

1,145 crore
rupees was the average value of daily transactions conducted through ATMs in the country in the past year, ending June 2008

No penalty for sleeping accounts: Do you have a savings account that you haven’t touched for months? Now you will not only earn the regular 3.5% interest on it, but also escape the penalty for sleeping on the account. The RBI has recently ruled that banks can no longer impose a fee for reactivating the account, which ranged from Rs 200 to Rs 750. The circular issued by the central bank suggested the same interest rate on unclaimed fixed deposits. An account is considered inoperative if you don’t withdraw or carry out credit or debit transactions, be it via the ATM, branch or the Internet, for a certain period at a stretch. Till now, banks had different definitions for this “period”, which ranged from one year to 15 months, but RBI has fixed the ceiling at two years. However, service charges levied by banks will not make an inoperative account operative.

Bonds as collateral: Most retired people find it difficult to land an unsecured bank loan, and drumming up the requisite collateral is easier said than done. But help is at hand, thanks to the Finance Ministry. If you own savings bonds, which were issued by the government as a saving avenue for retiring officials, you can now pledge it against a loan. But loans can be availed of only by the holders of the bonds, not by third parties, and the facility is limited to the 7% bonds issued in 2002 and the 6.5% and 8% bonds issued in 2003.

Be punctual or pay up: How often have you had to wait for days for a cheque to be credited to your account? Though RBI states that a local cheque should be processed the same day, or latest by the next day, and that outstation cheques shouldn’t take over 15 days, the ground reality was different. Now, the National Consumer Disputes Redressal Commission, on a petition by advocate Atul Nanda, has asked the banks to stick to the schedule. So if your cheque is languishing or lost, make sure your bank pays an interest at fixed deposit rate or a rate as per its policy.

i(ndia)Phone

The much awaited iPhone 3G is finally in India. But the high price tag— Rs 31,000 (8 GB) and Rs 36,100 (16 GB)—has been a big dampener. Most people are disappointed that the same set costs much less in the US: $199 or Rs 8,720 for the 8GB version. What they forget is that the monthly subscription charges are much higher in the US and one is tied to the service provider for at least two years. A simple calculation shows that over two years, iPhone usage works out cheaper in India than in the US.

The real cost of an 8 GB iPhone
 IndiaUS
HandsetRs 31,000 ($706)Rs 8,720 ($199)
Activation costNilRs 1,577 ($36) (one time)
Monthly fee*Rs 999 ($23)Rs 3,067 ($70)
Talktime/data299 mins/500 MB450 mins/unlimited
ContractNone #2 yrs with AT&T
Ownership cost over 2 yrsRs 51,783 ($1,181)Rs 83,923 ($1,915)
Taxes and actual usage charges have not been included; *monthly fee is for data and talktime; # All warranties/benefits are null and void if unlocked before 12 months; rupee-dollar exchange rate: 43.8

 

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