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After doing without it for five years, the State Bank of India has announced that it will impose penalties on non-maintenance of minimum balance in accounts from April 1. It also announced a revision of charges on services like ATMs. But, does this step, one of many new changes in banking regulations imposed after demonetisation, help in achieving the government’s larger goal of currency recall–keeping the larger portion of people’s money in the banking system?
A number of changes in banking regulations have taken place since the November 8 announcement of demonetisation and currency recall. But, in recent weeks, steps introduced by some major banks have betrayed one of the key purposes of demonetisation–large-scale adoption and sustained use of banking services to move India’s cash driven economy to a digital economy. One of the prime achievements of currency recall was that a huge amount of money came back into the banking system which gave it a much-needed boost. What was needed were easier banking regulations as an incentive for people to keep their money in banks. Penalties were definitely not the wisest way to go.
According to SBI’s announcement, failure to maintain a minimum average balance (MAB) in SBI accounts (SAB) will invite a penalty of ₹100 plus service tax if the balance falls below 75 per cent of MAB. If the drop is 50 per cent or less, then the penalty levied will be ₹50 plus service tax. In other revisions, SBI will allow only three levy-free deposits in savings bank accounts in a month and after that it will charge ₹50 and service tax on each transaction. Levies on current accounts could go as high as ₹20,000. Charges at ATM transactions have also been set. The bank will charge ₹15 as SMS alert charge for people who hold debit cards and maintain average quarterly balance of ₹25,000 during a three-month period.
India is essentially a cash driven economy and after the push for digitization after demonetisation and currency recall, the dependence on cash is returning to previous levels. According to the Reserve Bank of India, ATM cash withdrawals in the months of October last year was ₹2.55 trillion. In November and December, it reduced to ₹1.24 trillion and ₹0.85 trillion, respectively.
However, as remonetisation kicked in and limits on cash withdrawals were removed, ATM withdrawals in January 2017 increased to ₹1.52 trillion. In subsequent months from October 2016 to January 2017, the number of ATM transactions in the country were 802.68 million, 561.76 million, 630.85 million and 712.79 million, respectively. In October 2016, out of the total currency in circulation worth ₹17,540.22 billion, currency with the public was ₹17,022.10 billion. The figure in January reduced to ₹11,067.91 billion in circulation and ₹10,635.27 billion with the public.
It is natural that the public would want to withdraw and keep as much cash handy as possible as enough currency notes become available. During such time, a move like a penalty on non-maintenance of minimum account will reduce the confidence of a poor, economically weaker or even a lower middle-class person who doesn’t earn enough or earn at all and hence is unable to maintain the minimum ₹5,000 balance.
Also, one of the problems witnessed after demonetisation was hoarding of valid currency notes. People were not willing to deposit the currency back into banks once it came in their possession. Imposing levies on deposits, essentially, seems illogical as it pushes people against depositing money in banks.