How Additional Charges for Cash Transactions with Bank Affect You

With effect from November 01, 2020, some banks will be charging their customers for cash transactions. These charges will not be applicable for Jan Dhan Accounts.

As per media reports, private lender ICICI Bank will be charging convenience fee for deposits during holidays and non-banking hours. Customers will be charged Rs 50 as convenience fee for cash deposits in the cash acceptor or recycler machines on bank holidays and between 6:00 pm and 8:00 am on working days.

Cash deposit transaction in the cash acceptor or recycler machines exceeding Rs 10,000 per month (either in single or multiple transactions) will also attract convenience fee. The fee, reportedly, will not be levied on senior citizens' account, basic savings bank account, Jan Dhan accounts, accounts held by incapacitated and visually impaired persons, and student accounts.

Earlier, in August, another private lender Axis Bank had started charging its customers a convenience fee of Rs 50 on cash deposit transaction done after banking hours (between 5:00 pm to 9:30 am) and on bank holidays.

Other private sector lenders are likely to follow suit.

In terms of PSU lenders the finance ministry has clarified that no bank has proposed to raise bank charges in the near future. However, one public sector bank, Bank of Baroda (BoB) has reduced the number of free cash deposit and withdrawal from five times to three times per month with no change in the charges for transactions in excess of these free transactions.

With effect in November, cash deposits in urban branches of BoB beyond three transactions in a month carry a charge of Rs 50 per transaction. A similar transaction in semi urban and rural branches will be charged at Rs 40 per transaction beyond three transactions in a month.

Likewise, cash withdrawals (excluding ATM withdrawals) after the first three transactions in a month are charged at Rs 150 per transaction for current account, cash credit account, and overdraft facility. For savings accounts, such transactions will be charged at Rs 125 per transaction in urban branches and Rs 100 per transaction beyond first three transactions for semi urban and rural branches.

The above mentioned changes are applicable for senior citizen accounts as well.

Why are banks levying additional charges?

The RBI had announced moratorium on loans and loan restructuring earlier this year to protect borrowers from the economic fallout due to the pandemic. In its annual report, RBI had stated that unless moratorium on loans and loan restructuring is closely monitored and judiciously used, it might have implications for the financial health of the banks.

The measure announced by RBI helped in averting a major spike in non-performing assets in the first two quarters of the financial year. However, there is possibility of a subsequent build-up in stressed assets if despite these measures borrowers find it difficult to fulfill their debt obligations.

Moreover, even though RBI announced ample measures to boost liquidity for banks, credit growth has been muted since banks have become increasingly risk-averse and are building their credit portfolio with caution.

Weak credit growth and slow resolution of bad debt could result in muted profitability growth for banks in the coming quarters.

Charging customers for cash transaction is probably the way out for some banks to offset the otherwise weak growth in net interest income. Restriction on cash transactions apart, several banks are charging their customers with hefty fees such as SMS alert fees, fees on digital transaction, and other convenience fees.

How will it affect the common man?

The move could help bank turn profitable but will serve as a blow to the bank customers, especially those having accounts with private lenders, many of whom are themselves going through financial stress due to loss of income amid the pandemic outbreak.

Notably, bank deposit is a preferred option for many individuals to manage their liquidity needs. Higher services charges and/or reduced number of free transactions could discourage customers, mainly in semi urban and rural areas, from parking their money with banks for their liquidity needs.

How to handle liquidity needs, whereby the impact of the charges can be avoided or minimized?

If you are someone who deals in higher number of bank transactions per month, you can look at diversifying your funds in other liquid avenues apart from banks.

Short term debt funds are one avenue you can consider for managing your liquidity needs. There is no entry load applicable on mutual fund investments, whereas exit load in short term debt such as liquid fund and ultra short duration funds is nil or negligible.

Investors can check the exit load applicable on the scheme at the time of investment in the scheme offer document. Any change in exit load in the future will be only applicable for future investments and not the existing investments.

To conclude...

Bank customers should be aware of the various charges applicable on various transactions such as cash, ATM, and digital transactions along with other fees and charges as may be applicable. Any undue fees or charges levied by bank should be brought to its notice immediately. When investing in bank deposits, you can consider diversifying your deposits across different banks instead of parking all your savings in one bank.

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Warm Regards,
Divya Grover
Research Analyst

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