Know your charges- ‘KYC’ that bank customers should be aware of

Most customers are not aware of the various charges that banks levy for their services due to ignorance, indifference, or lack of information. The Reserve Bank of India has stipulated that banks should provide basic banking services at reasonable charges. The charges should be even less for special categories of customers like customers in rural areas, pensioners & senior citizens. RBI has also instructed banks to inform individual customers in advance when there are changes in the service charges. You can avoid paying unnecessary charges by being aware of the charges that banks levy. Here is a primer on some of the charges levied by banks for the services they provide:  

Minimum balance 

Banks normally stipulate minimum balance requirements in savings or current accounts which could be either monthly or quarterly. However, there may be zero balance accounts such as the Jan Dhan accounts to promote financial inclusion. If your bank insists that you must maintain an average monthly balance of Rs10,000 in your account, you can either keep a minimum balance of Rs 10,000 every day during the month or keep Rs 3 lakhs for a day in the month (Rs 300,000 divided by 30 days will get an average balance of Rs 10,000). Banks calculate this by adding the balances at the end of every day and dividing it by the number of days in the period. Banks levy a penalty if the balance falls below the stipulated minimum level. The confusion in the minds of customers is because of the lack of awareness of how the average balance is calculated. The banks levy a penalty, for non-maintenance, on the shortfall. So if your bank states that for the savings bank variant that you chose, the monthly average balance/ minimum average balance (MAB) should be Rs 10,000 and the penalty for non-maintenance is 6 per cent or Rs 500 whichever is lower, and you MAB comes to Rs 7,000, then the likely  penalty will be Rs 180 (6 per cent on Rs 3000 which is the shortfall).

NACH transactions

Banks levy charges for failed NACH (National Automated Clearing House) transactions for want of sufficient Balance. You can register for NACH mandate if the payments are repetitive like payment of utility bills, SIP (Systematic Investment Plan) , loan instalments, insurance premium etc. While some banks charge a flat amount for all failed transactions few of them charge for every successive rejection. For example, if your Bank charges Rs350 for the first failure it may charge Rs750 for subsequent rejections in that quarter. 

Dishonoured cheques

There will be charges on cheques issued by you and deposited by you in case of them being dishonoured. But your bank will slap higher charges if cheques issued by you are dishonoured for insufficient funds. This is meant to discourage customers from issuing cheques without keeping adequate funds. Banks also levy charges for issuing cheque books beyond a certain number of cheques.

Cash transactions

Though the cash transactions by customers are decreasing as we move towards a less cash economy, banks cannot do away with cash completely. Charges are levied on cash deposits you make beyond the stipulated number of free transactions at your home branch. While the limit is higher in-home branches, the bank may levy Rs 100 to Rs 200 on cash transactions that you do at your non-home branches. 

ATM /debit card transactions

There are charges for ATM transactions also. The banks permit free transactions beyond which every transaction is charged. varying from home to non-home bank ATMs. As per RBI guidelines, you can do 5 free transactions at home bank ATMs and 3 free transactions at non home Bank ATMs. Beyond this, the bank will levy charges for both financial and non-financial transactions.

Debit or credit card charges

These charges are levied every year and vary from a minimum of Rs 100 to Rs 500. The banks also charge when they issue a duplicate card when a card is lost or damaged.

Miscellaneous charges

There are also charges levied for SMS, balance certificats, physical statements, photo attestation, address confirmation, stop payment, standing instruction etc. Some banks charge for remittances done through NEFT & RTGS also.

To ensure fair practices in banking services, RBI has issued guidelines to banks for ensuring reasonableness of charges and incorporated the same in the Fair Practices Code, the compliance of which would be monitored by the Banking Codes and Standards Board of India (BCSBI). After all, customers should not view banks as blood-sucking vampires!

(The writer is CFA and former banker, presently teaching at Manipal Academy of BFSI)