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Q. Transaction charges in banks: Comment on private banks decision to impose transaction charges on more than four transactions.
Mar 03, 2017 Related to : GS Paper-3

Ans :

Since last few years the central government has launched various initiatives to bring more people under formal banking sector. In the backdrop of demonetization, the government of India is promoting payment through bank channels instead of cash transaction. Recently the private sector banks in India have started imposing charges for transactions in cash at bank branches.

Issue- 


Only four cash withdrawals or deposits would be free per account in a branch. From the fifth transaction, certain charge will be applicable for each transaction. Imposing such charges will impact the government’s move to promote formal and digital banking system.

Analysis-

  • India with 1.33 billion people has less than 2.2 lakh ATM machines, that too confined to metropolitan cities. The people from the vast hinterland have to operate through branch banking. 
  • Restricting third-party cash transactions to certain amount, along with these new cash transaction costs, can destroy small and medium business, the informal and farm economy, and slam the brakes on growth.
  • Zero-balance and salary accounts will also comes under restriction according to private banks. If the government and Reserve Bank of India do not step in immediately to stop private banks from imposing these transaction costs, state-owned banks might also follow suit.
  • In such scenario, the hope of extending formal banking to most of India will become impossible task. A new banking apartheid, which favours wealthy customers and large transactions and excludes the small person from the banking system, will become the norm. 
  • Government should make digital transactions as costless to promote non cash transactions. It should attract people to use digital payments instead of cash transactions, then only the aim of formal banking will get succeed. 

Conclusion-

The successive governments have tried to promote formal and digital banking systems in India. The present government has initiated various schemes. Recent decision of private companies to impose charges will adversely affect the aim of the government to promote formal banking system. So the government should ensure that at least public sector banks should not follow suit.


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