Technology used to strangle Bank Customers

Reserve Bank of India is slowly losing focus on customer service aspects of Banking service. Acceding to a request from the Indian Bank’s association, RBI has imposed an ATM transaction limits of 3 withdrawals per month after which the customer would be charged Rs 20 per transaction. (Refer report)

Many of the Banks have already imposed a limit for direct withdrawals at the Bank counters and are charging fees for withdrawing cash at the counters. With the current notification customers are made to pay whether they withdraw cash at the counters or at the ATM. It appears that RBI wants customers to move back into the cash economy and withdraw all their monthly requirements in one go.

When technology was introduced in Banking, customers were promised of better services at lower costs. However over the years Banking transaction costs have only been on the increase and at a pace higher than the inflation. I would be happy if IBA releases data of “Weighted Average Banking Transactions Cost” in India and check how it has been increasing year after year say from 1980 when technology at higher levels was brought in to the system.

While the Government will start subsidizing the costs to select sections of privileged sectors for political reasons, other ordinary “Neglected Class of Bank Customers” will end up paying more than proportionate costs for the Banking services they may avail or even not avail.

Will the RBI Governor Mr Raghuraman Rajan respond?


Share Button
Print Friendly

RBI limits Customer’s Loss on Phishing

In an excellent but long awaited move, RBI has directed Banks that the liability of customers on “Phishing” loss should be limited to Rs 10000/-

See Report

The new Banking Service code of ( Banking Codes and Standard Board of India -BCSBI)  says that for any unauthorised internet banking transactions, the customer’s liability is limited to Rs 10000, irrespective of the funds moved out of the account. An unauthorised transaction is one that doesn’t have the express and implied approval of the account holder.

According to the code, “If a third party manages to get hold of the user ID or password in an unauthorised manner and any debit takes place and which he notifies the bank, the maximum loss will be Rs 10,000.”  Also, the code says that customers will not be liable for any losss due to unauthorised fund transfers taking before they receive the password for internet banking transactions.

Further, the onus will be on the banks to establish that customers have compromised the secrecy of their password.

In some instances, the liability could be lower than Rs 10,000. The new code says that in the event of any unauthorised transactions, this would be the lower of the following options: the actual loss at the time of notifying the bank; the limit set for such transactions; the balance available for withdrawal; a maximum of Rs 10,000.

For instance, if a customer has a balance of Rs 5,000 but the fraudster transfers Rs 25,000 by taking a temporary overdraft, the loss would be limited to the minimum balance of Rs 5,000 in the account.

It may be recalled that many such cases of frauds have been reported earlier at The undersigned has been relentlessly following legal action against many Banks in this regard. Damodaran Committee report had also spoken about such cases.

The current guidelines come as a great relief to the Bank’s customers. congratulates RBI for taking these steps.


Share Button
Print Friendly

No bank has proper Information Security Guidelines

An RTI query filed by Nagpur based NGO Cyber Awareness Organization (CAO) recently revealed that none of the banks in the country had drafted information security guidelines which are mandatory as per RBI’s guideline on electronic banking. 

Speaking to the press during his visit to Nagpur recently, Naavi said “When RBI started allowing internet banking way back in 2001, it clearly laid the responsibility of data security and educating customers about the dos and don’ts on the banks. It was also advised that all banks offering the service take cyber crime insurance. None of that has happened even today”

Details here

Share Button
Print Friendly

Does Nachiket Mor Committee report impress to deceive?

One of the first initiatives that the new RBI Governor Mr Raghuram Rajan took after assuming office a few months back was the formation of the Nachiket Mor committee on “Comprehensive Financial Services for Small Businesses and Low Income Households”.

Now the committee which was set up only in September 2013 has submitted its report at the same speed with which Raghuram Rajan displayed on the licensing of new banks. RBI released a copy of the report on january 7th for public comments. The Comments may be emailed or sent by post to the Principal Chief General Manager, Rural Planning and Credit Department, Reserve Bank of India, Central Office, 10th floor, Shahid Bhagat Singh Marg, Mumbai 400 001 on or before January 24, 2014.

The committee has made several radical recommendations and while laying down its vision statement for financial inclusion and deepening, has suggested providing a universal bank account to all Indians above the age of eighteen years and has recommended a Vertically Differentiated Banking System with Payments Banks for Deposits & Payments and Wholesale Banks for credit outreach with relaxed entry point norms of ` 50 crore.

On priority sector, the Committee has recommended Adjusted Priority Sector Lending Target of 50 per cent against the current requirement of 40 per cent with sectoral and regional weightages based on the level of difficulty in lending. The Committee has also recommended risks and liquidity transfers through markets.

The Committee has advocated regulatory convergence between banks and NBFCs based on the principle of neutrality with regard to classification of non-performing assets and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 eligibility.

The Committee has suggested that a State Finance Regulatory Commission (SFRC) be created into which all the existing State Government-level regulators could be merged and functions like the regulation of Non-Government Organisations-Micro Finance Institutions and local Money Services Business could be added on.

The Committee has desired that the Reserve Bank should issue regulations on suitability, applicable specifically for individuals and small businesses, to all regulated entities within its purview so that the violation of such regulations would result in penal action for the institution as contemplated under the relevant statutes through a variety of measures, including fines, cease-and-desist orders, and modification and cancellation of licences.

The recommendations are radical and will have significant impact on the Banking and Financial sector in India and will also significantly affect the stock markets. It will also affect the proposed new Banking licensee aspirants.

In view of the nature of some of the recommendations that may also affect security of public money, it is essential for experts in the field to study the report and submit their comments to RBI in time.

Mr M.S.Sriram, a former professor of IIM Ahmedabad opines has published an interesting article titled “Why the Nachiket Mor committee report on financial inclusion disappoints” in which makes a good reading to begin your exploration of the report.


Copy of the report is available here.: 

Additional comments of two of the members can be found here:


Share Button
Print Friendly

Abolition of Personal Income Tax

A discussion has now ensued in India about the possibility of personal income tax being completely abolished if BJP comes to power. This proposal though is in the initial stage of discussion and yet to be adopted into the manifesto of the party for the forthcoming Loksabha elections, has already evoked lot of interest both from the economists and politicians.

There is no doubt that the proposal will be received well in those markets where AAP is gaining strength and hence it is a good political policy. However what is also required is to discuss the proposal from the point of view of it’s economic impact.

The undersigned welcomes the move for its revolutionary potential to reform the tax regime in the country. At the same time it is felt that some collateral measures would help in making the proposal work to long term benefits to the economy.

A good perspective on the subject is found in First post which is worth reading.

It is estimated that the current revenue from direct taxes in India is of the order of Rs 250000/- crores.  If therefore the proposal has to be given a serious concern, there has to be counter measures to offset this revenue loss.

It is also expected that if the proposal is introduced,  there will be an increase in the inflow of funds from professionals and businessmen to the Banking sector. (It is expected that the abolition of IT would presently be in the non corporate sector).

It is stated that 99% of the tax payers contribute insignificant amounts to the revenue kitty. It is only the top 4 lakh persons who contribute to the revenue in a significant manner.  Hence the abolition if it comes through will provide relief to early 4 crore voters in India who need not file IT returns. The current regime of Mr PC is obsessed with expanding the tax base and hence has built up a large number of irrelevant tax assessees. These are also the persons who feel harassed when IT officials raise needless queries on trivial transactions. The enormous saving in manpower arising out of leaving the 4 crore assessees from the tax bracket would add to the productivity of the economy.

One suggestion that is being discussed to offset the loss of revenue is an “Expenditure Tax” where a Bank customer would be taxed on the amount of “Net withdrawals from the Banking system”. However such a proposal would be counter productive since it will bring back the problems to the assesses in a different manner. It is therefore better if no such expenditure tax is considered. However there would be some increase in the demand for manufactured goods and an increased inflow in the indirect taxes.

In such a scenario, there would be a need for placing some incentives for public not to spend indiscriminately and adding to inflation. It would therefore be essential to encourage public to retain funds in the Banking system itself. An interest rate regime based on the volume of deposits can encourage increased savings accumulation in the Banks and avoidance of an incentive to have multiple bank accounts and carrying of benami accounts. What this means is that interest rate surcharge is paid to the depositors on the basis of deposit slabs. Eg: Deposits over Rs 1 lakh  will have an incrementa interest of 0.25% over and above the rate otherwise payable. Similarly deposits abo r Rs 5 lakhs can be paid a higher interest of o.5% etc.

At the same time, Banks need to invest the increased funds in a productive manner. For this purpose it would be advisable that the Government/RBI initiates some action on channelising Bank funds to the manufacturing sector by incentivising lending for Capital Expenditure on a long term basis. In other words, term loans for 5+ years to the manufacturing sector need to be encouraged. This can be done by providing some SLR/CLR exemptions based on long term lending to manufacturing sector.

Such a move would also provide a push to the stock markets particularly to the manufacturing sector besides banks.

In summary, abolition of Income Tax is exciting. At the same time some changes in the Banking sector would make it even more exciting.

I wish the think tank of BJP considers such additional proposals for Banking sector reform along with the proposal for abolishing the income tax.



Share Button
Print Friendly

Electronic Frauds in Banks.. New guidelines to benefit Customers

The year 2014 has started with some good news for Bank fraud vicitms. According to today’s Economic Times, it is stated that the new code released by the Banking Codes and Standards Board of India (BCSBI) states that

“Customers will have to be compensated for electronic frauds unless the bank can prove the fraud occurred due to negligence on part of the client”

See the Article

This is to be considered as a positive development for the reason that this narrows down the defense of the bank in avoiding the liability through litigation.

Further this may reopen the opportunity for customers to approach the Banking Ombudsman since non compliance of the BCSBI code could be a cause of action for the Ombudsman to intervene. Earlier the Banking Ombudsman was reluctant to take up the complaints on the ground that it involved a Cyber Crime and required evaluation of complicated digital evidence.

According to BCSBI, “The revised code says that if the customer incurs any direct loss due to a security breach of the Internet banking system that is not contributed or caused by the customer, the bank will bear the loss, unless it is able to establish that the customer is guilty.” 

The revised code which will be effective from January 2014   also  says banks will be responsible for any acts of omission and commission committed by business correspondents.

Naavi has been personally fighting for such mandate for several years now and Banks such as ICICI Bank and Axis Bank have been frustrating his efforts through litigation. These guidelines therefore come as a big relief.


Share Button
Print Friendly