Unless you are blatantly criminal or pathologically paranoid, chances are, you have not thought too much about your bank account — other than worrying about the balance in it, of course.

By ‘you’, I mean the ordinary, middle-class, working citizen, who forms the bulwark of the banking system in terms of the number of customers, and also accounts for a significant portion of its funds by way of fixed deposits and savings bank balances.

For most ordinary, salaried or working class citizens, housewives trying to save a little from the monthly budget, and children lectured by thrifty parents to save their little cash gifts “for a rainy day”, a bank account is someplace where you park your money, not only to avoid keeping cash at home, but as the principal, and often the only means of accumulating and making your little, hard-earned hoard of capital grow.

So far, so good. Banks keep your money safe, even give you some interest on your savings bank deposits, provide you with cheque books and ATM cards to facilitate easy withdrawal of funds, and increasingly, a number of other services ranging from transferring funds instantly to paying bills, settling credit card dues and even topping up the balance in your mobile phone.

Not bad, one might think. In fact, that is how most bank customers think, which is why they have quietly sat back and allowed their rights to be ridden roughshod over by everyone from the government to the banking regulator to the banks themselves.

THE TRUTH IS OUT

Don’t believe me? This is what K.C. Chakrabarty, Deputy Governor of the Reserve Bank of India, had to say on the matter in the course of a speech he delivered in Udaipur earlier this month: “Our experience in India demonstrates that the pricing of the products and services — both on the liability as well as on the asset side — are heavily weighed against the retail customers as a group.”

Translating for bankerspeak, what the person tasked with overseeing banks is saying is that whether it is relating to deposits (liabilities) collected from retail customers (you and me) or loans (assets) extended to them, the terms of trade are all on the side of the banks. In other words, you are not getting a fair price for your money, and you are not being charged a fair sum for your credit.

That is not all. In a speech of astonishing candour, Chakrabarty went on to give examples of how this happens. “In fact, we have evidences of retail customers being paid different interest rates on their deposits for the same tenor within the same bank. Similarly, I have seen one particular bank’s lending rate for automobile loan vary quite widely. I do not know why a standardised loan product like an automobile loan should be priced differently for different customers when it is a secured loan. Banks should in such cases upfront decide on whether the customer can be given a loan or not, and once the lending decision has been made I don’t see any reason for discrimination in the pricing of the loan. I do not understand why the banks should be looking to benefit from information arbitrage they hold rather than pricing their products transparently.”

Great questions, questions which deserve an answer from the government, from our lawmakers and above all, from the banking regulator, the Reserve Bank of India, itself.

In fact, the only question Chakrabarty did not ask, was this: Why aren’t the customers doing anything about this?

Although he did not ask the question, Chakrabarty nevertheless provided the answer: “In contrast to the situation in developed economies,” he said, “such problems are more endemic in the developing world as here not only is the level of financial education and literacy low, but the financial consumer activism is also pretty much dismal.”

ONE PRODUCT APPROACH

But can we lay all the blame at the door of a lack of awareness amongst customers? And, if, as the Deputy Governor’s statement clearly shows, the authorities are aware of this lack of awareness, what are they — the government, the regulator and the banks themselves — doing about it?

The answer is, as our collective experience as individual customers clearly demonstrates, very little. And the reason for this lies in the mindset of policymakers, regulators and banks, who essentially view the retail customer as a liability rather than an asset, although retail banking as a whole contributes to 14 per cent of the country’s GDP!

The roots of this lie in the history of the development of retail banking services in India, which has been inordinately skewed in favour of just one product — the savings account — as a result of policy.

When the government first needed to monetise the savings of the people and channel them into the organised financial system, the savings account was a great idea.

In order to get people to open accounts with banks, and more importantly, to get them to park their money in them, the savings bank offered an incentive — the interest paid on the balances.

The government regulated this interest rate — nominally, to protect the consumer, but in reality, to ensure that banks managed to stay within profitable operating parameters. Whatever the reason, the result was that banks largely saw savings account holders as a cost centre.

And in order to offset some of this cost, a pernicious system of institutionalised cheating of customers was allowed to flourish. Interest was paid on the balances, yes, but it was not a market rate of interest (since ‘costs’ had to be offset), and what was paid was not even the declared rate of interest. This was done by manipulating the way the interest due was calculated (by paying interest on the minimum balance during a fixed date range in a month) and not the average balance or the actual balance, as well as how often this was compounded.

As the then RBI Governor Bimal Jalan pointed out during a credit policy review in 2002, “although the nominal interest rate is 4.0 per cent per annum, the yield on such deposits works out to 3.4 per cent per annum only as interest is payable on the minimum balance between tenth and last day of each month. Nearly four-fifths of such saving deposits are held by households.”

ONE WAY STREET

This was changed only a few years ago, with deregulation of both deposit and lending rates. However, has all this deregulation and freeing up of the banking sector actually helped you and me? Ask yourself what the possible answer would be to the following questions:

“I have had a savings account with XYZ bank for 15 years. This month, my employer has delayed payment of salary. Can I get an overdraft on my account to pay rent?”

“I have been banking with ABC bank. They will give me a loan to buy my dream house without any problem, since they know me for so many years.”

“My salary account is with XYZ bank for years. Now, I am planning to start a small side business to make ends meet. Surely, my bank manager would approve a small loan for this.”

One can add many more such questions, but you already know the answer to all of them – no. The savings bank customer – the overwhelming majority of the retail customer base of the banking system – has only a one way relationship with the banking system.

When it comes to being treated like an actual customer, as a potential source of funds and fees for banks, the system firmly believes that such customers are only in the business space.

Which is probably why the Finance Minister is bemoaning the fact that just the top 30 of the largest borrowers account for nearly 35 per cent of the bad debts of the banking system!

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