Sunday, November 12, 2006

Statement of account

Are our banks structurally or deliberately inefficient?

Noted British economist Josiah Stamp once remarked that “Banking was conceived in iniquity and born in sin”. I wonder whether he had Indian banks in mind while making this observation. His comment upon the banking services becomes all the more ubiquitously sensitive as it has to do with our finances, whatever meagre we have. Unfortunately, our choice is restricted to the inward-looking, self-oriented PSU banks on one hand, or the outward-looking, target-oriented private and foreign banks on the other. The former are merrily feeding (starving in most cases) themselves on past legacy and the latter are putting an unending effort to lure customers and build a similar legacy. Amidst these dissimilarities, there are some common traits though. The first is that both unanimously fail to deliver. The only difference being that the former is committed ‘not to deliver’ and the later ‘committed so much that it cannot deliver’. And the second is, the customer (for them), is nothing but an insensitive account number logged in some obscure ledger or on an unreliable computer.

Historically, banking had been a monopoly service of the Government of India. And just like everything that is state-owned becomes sacred and outside of public scrutiny, the same had happened to the Indian banking. The fact remains that even today the Reserve Bank of India (RBI) is one of the least transparent apex regulatory institutions. This obscurity and other versions of high-handedness have bred irrevocable operational inefficiencies and the net result – the customer has been at the receiving end.

Irritating irregularities and customary customer harassment have become acceptable features today. But it was shocking for me when I read that 88 commercial banks earned an abnormal interest of Rs.6.2 billion per day, owing to the delay in crediting around 1.3 billion cheques worth around Rs.113.37 trillion, deposited for clearance purpose. This is in spite of the RBI guideline that stipulates a local cheque to be credited within three days and an outstation cheque within seven working days. Moreover, banks in India are sitting pretty on huge funds of about Rs.9.29 billion cash balances in over 10 million accounts that have been in operation for over 10 years. To cap it up, even service charges are levied on these accounts amounting up to a whopping Rs.9.13 billion. As majority of the banks do not correctly report the true number of non-claimed accounts, the above mentioned figure is grossly underestimated. While the banks have ignored the RBI’s guideline of 1977 and 1988 of locating the legal claimant of the accounts, they were quick to lap up the 1999 directive which authorised them to levy service charges on such accounts.

But then, it would be wrong to remark that they are always inefficient. Mark their efficiency when a customer defaults. In fact, the Indian judiciary must take a lesson or two from their ruthless promptness in charging fees, fines and penalties. No hearing, no redressal, just PROTOCOL.


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