Now, penalty for paying credit card dues by cheque!

In a mockery of RBI's independence, a lowly under-secretary of Dept. of Financial Services has issued a fatwa to government banks to penalise you if you pay your credit cards due by cheque! The under-secretary got this idea from HDFC Bank!

Nearly a month after Moneylife Foundation discovered and took up the issue of the Reserve Bank of India's (RBI) bizarre idea of penalising bank depositors for using cheques, we find that the idea or rather the fatwa to this effect had emanated from the finance ministry as far back as 25 October 2012 at the possibly at the instigation of India's most profitable bank.

On 25 October 2012, DD Maheshwari, Under Secretary in the Department of Financial Services sent out a fatwa marked "most immediate" to all chief executives of public sector banks (PSBs). The burden of this two-paragraph diktat was that "to discourage the use of physical/cash mode of transactions, all public sector banks are requested to consider charging a processing fee from the customer paying credit card dues either in cash or through cheque". HDFC Bank has recently increased such charges from Rs50 to Rs100 per transaction and has sent a communication to its customers in compliance with the regulatory requirement of giving a month's notice.

It doesn't stop at that, after holding up HDFC Bank's usurious charges as a role model for PSBs, the letter asks them to "consider issuing appropriate instructions in this regard" and send a "copy of the instructions" back to the finance ministry.


The finance ministry may have used the word 'consider', but its insistence that banks must report back to it shows that it is an order and various banks are planning to fall in line. The finance ministry's fatwa makes a mockery of the RBI's pretence that it is an independent regulator of banks, because the government has not even bothered to refer this issue to the central bank before issuing orders on what amounts to micro-management of bank charges.

RBI deputy governor Dr KC Chakrabarty has repeatedly exhorted customers to vote with their feet and move to another bank if they dislike the high costs and charges of foreign and private banks. It now appears that the finance ministry will forcefully intervene to ensure that they do not have PSBs to turn to.

The government, as owner of PSBs obviously feels it is within its rights to dictate charges, since it is coughing up vast sums of taxpayers money for bank recapitalisation (Rs14,000 crore is set to be pumped into PSBs for their recapitalisation just now). But instead of ensuring better loan recoveries from dubious industrialists such as Vijay Mallya of the UB group, realty companies and others, who owe tens of thousand crores to banks in bad loans, the government has hit upon the idea of punishing legitimate and tax paying bank customers with new charges.

It gets worse. The RBI, which has been lamenting that a large part of the Indian population is unbanked, then responds by setting up an internal committee to prepare a paper titled "Disincentivising Issuance and Usage of Cheques". This was put up on its website and open for public comment until 28th February. The report itself was kept low-key and been ignored by the mainstream media almost entirely. Moneylife had then pointed out that the plan to levy a series of punitive charges on the use of cheques, with the utopian objective of forcing people to use online money transfer facilities (such as NEFT and RTGS which are also charged) only punishes those with legitimate bank customers. Please read RBI Must Scrap No Cheque Idea, which is the most commented article in Moneylife since then.

Moneylife Foundation, which has over 21,000 members has sent a detailed memorandum to the RBI on behalf of depositors. Please see below...


A senior banker who writes for Moneylife under the pseudonym Gurpur also said that the RBI report on Dis-incentivising Issuance and Usage of Cheques "is a classic example of putting the cart before the horse. Because there are problems galore in the electronic payment system, and even before stabilising this, the RBI wants to dispense with the cheque system". See Incentivise usage of electronic payment systems before dis-incentivising usage of cheques. Gurpur followed it up with another article that pointed out how the UK had bowed to public pressure given up the idea of abolishing cheque usage. See UK govt bows to public pressure-rejects abolition of cheque system. Will RBI follow suit?

Moneylife had said, "The report on stopping the use of cheques makes you wonder whether RBI is accountable to us or exists solely to help banks enhance profits at the cost of customers, under the guise of seemingly lofty objectives". Ironically, the finance ministry's order makes it clear that it swings to the tune HDFC Bank.

Comments
ashwin bahl
9 years ago
We are heading for dark ages with these fantastic backward ideas. The honest aam aadmi acount holder will bear the burden always with hidden service charges, fees and taxes galore on our transactions.Lage raho
northpolestar
9 years ago
They should put service fee only if paid by cash and usually it is done by collection agent that comes to wherever one asks them to come.
Payment by Cheque is usually White money only.
Payment by Cash could be black money.
Somesh Kumar Gupta
10 years ago
NO CASH NO CHEQUE ONLY DD - WAH! MR.MAHESWARI WELL DONE! THIS WILL PROVE YOU FIRST NAME CORRECT.
RAJESH B SHAH
10 years ago
There are many problems even with the online fund transfer options (NEFT and RTGS). Instead of solving them how govt. can force us to use online fund transfer options to pay credit card bills. To make the situation worse they are charging us for using NEFT option. Actually to encourage us to use this option they should not charge us as by not using the cheque we save banks' money also and their work load is also reduced. It is very obvious that govt. officials lack professional and pragmatic approach and we can not expect anything better from them for a very obvious reason known to everyone.
Dayananda Kamath k
Replied to RAJESH B SHAH comment 9 years ago
banks are loosing money by giving loans to politically connected people and can not recover also this money becuse bank chairmans will be needing their help for getting post retirement postings. so to show profits they are devicing rules to loot the public. and every govt authority is giving their helping hand.
Dayananda Kamath k
10 years ago
rbi has become facilitators of hightech frauds than being a regulator. do you think the investigation by rbi in money laundering by 3 private banks will result in any action against the banks? in 2005 i have brought to the notice of rbi that one of the naionalised banks atm recharging of mobile phones is faulty and will recharge mobile and recrdit the bank customers account debited amount due to technical snag in the system.after so many reminders and sometimes nasty letters rbi conducted the investgation. but didi not take any action and the amount so credited is never recovered from the customers.similarly third party import of gold by bullion dealers in the name of nominated agencies.
TD Sharma
10 years ago
This would appear to be against all norms of Banking discipline and the requirements of the IT Act that payments must be made by cheques. It is not clear as to how, in the first instance, this type of an order got issued and at whose instance? I hope, your letter to RBI Gobernor will bring some light!
Adi Daruwalla
10 years ago
First include the majority of the populace into the banking normal banking gambit. Then ensure that majority use the e-system or phone banking or mobile banking.
It is a disadvantage as correctly stated to the people in the 50 - 80 age bracket. They have to use cheques, as nobody helps them with the electronic medium. Why then thorugh charges discourage the use of cheques. Private banks have just grown in size without providing any service, and with the recent spate of jugglery exposed you know what to attribute their growth too, jickery pockery.
Mrs Kokila Mani
10 years ago
Nowadays,Banks-both PSU and Private have forgot services and are particular in collecting Service Charges meticulously!
Call(ous) Centres and Customer Care(less)are to cite a few!
Subcontracts is the order of the day. Cheques at drop boxes are collected as and when the agency likes - and GAK how their transits proceed! You never get the returned cheques nor the reason!
Let's forget banks - leave alone Cheques ...
Mrs Kokila Mani
10 years ago
Nowadays,Banks-both PSU and Private have forgot services and are particular in collecting Service Charges meticulously!
Call(ous) Centres and Customer Care(less)are to cite a few!
Subcontracts is the order of the day. Cheques at drop boxes are collected as and when the agency likes - and GAK how their transits proceed! You never get the returned cheques nor the reason!
Let's forget banks - leave alone Cheques ...
Veeresh Malik
10 years ago
CitiBank has also placed this requirement in its comments column, stating that "effective 01apr'13, fee of Rs 50/- plus service tax will be levied for credit card payments in cash at CitiBank ATMs. Alternate payment channels where no fee is applicable . . . NEFT, online banking, ECS, Standing Instructions, . . ". When I called up and asked them what about cheque, they looked up their instructions and said there was no fee payable by me for cheque payments, as yet. While I can understand a fee for cash payments (why and how do they accept cash payments, anyways??) the attempt to levy a fees on cheque payments is absolutely thoughtless in its conception, and needs to be withdrawn right away. Reason is simple - electronic banking is still not credible in India for retail customers.
Babubhai Vaghela
Replied to Veeresh Malik comment 10 years ago
I view CTS 2010 compliant cheques a Criminal Conspiracy to compel citizens to go for Electronic Fund Transfers as those new cheques have not been issued by all the Banks to all the Customers and non-CTS cheques going to be invalid unless RBI extends the deadline.
kushal shankar ojha
10 years ago
An Under Secretary authenticates the decision of the Government under the Authentication Rules; the contents are not his own brainchild. Even the letter under criticism mentions in para 5 that the letter has been approved by the SECRETARY(FS). A Government communication may be criticized for its contents, but never on the indecent and incorrect ground that it has been "ISSUED" by a "LOWLY UNDER SECRETARY". A clarification: I am not, nor have ever been, an Under Secretary : I am a retired Judge.
alpharomeo
Replied to kushal shankar ojha comment 10 years ago
instead of expressing outrage over calling a babu "lowly under secretary", why don't you lead the people against govt tyranny, Mr Ex-Judge? It is getting worse day by day.
Amit Sengupta
10 years ago
The myth that HDFC Bank may not really play the role model is now proven, no matter where the investigations take us to. Govt wants to offer many more bank licences to facilitate financial inclusion. Why? Will the chairpersons of these banks resign, come out in the open and state what went wrong- why develop a system, which seems to be tailored to money laundering. This probably explains the recent flourish in cold calls promising guaranteed returns.
jaykayess
10 years ago
This move by PSBs is absolutely ridiculous and anti-consumer.

Where is the internet connectivity in non-metros that will permit easy online payment?

Where are the lean, high-performance and low-bandwidth optimized banking portals that make it fast and easy to use online banking? Take a look at ANY banking portal, and these are heavy, graphic-filled webpages that take ages to load, are poorly designed with horrible navigation, and completely non-intuitive user-interfaces. Even the third party payment websites such as BillDesk eventually link you back to your own bank's website to make the payment.

Where is the complete elimination of NEFT and RTGS charges by banks? RBI permits levying of transaction charges "upto" Rs.5/- per transaction for online transactions, and most banks (including SBI) do levy these charges. In comparison, they charge Rs.3/- per cheque leaf. With this warped incentivisation, why should any individual pay MORE per transaction, especially when the cost to the bank is just a few paise for online transactions?

And last but not least, all banks have recently introduced cheque truncation services to speed up processing of cheques electronically. If they were planning to dis-incentivize cheques, why have they invested hundreds of crores in these systems?

MoneyLife needs to aggressively fight this stupid, draconian and antiquated regulation and scrap it before it becomes a widespread disease of over-regulation and micro-mis-management.
rekha bajpai
10 years ago
Thank you for taking up issues on behalf of consumers.You are the only independent crusader in the media.
Prabhat
Babubhai Vaghela
10 years ago
Concerned citizen complaints in the larger public issue of serious concern conveyed by Moneylife to RBI Governor.
1. https://groups.google.com/forum/?fromgroups=#!topic/right-to-information-act-2005/4sUtdcOA2EI
2.
https://groups.google.com/forum/?fromgroups=#!topic/right-to-information-act-2005/0jaPGlLFY3U
To be followed up.
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