Indian Central Bank directs banks cannot charge for account closure

Wednesday, 28 December 2011 00:02 - - {{hitsCtrl.values.hits}}

MUMBAI: Banks have been told not to charge fees from customers who are closing their accounts as RBI moves to make modern banking accessible to millions of ordinary people, including pensioners and the poor.

In a recent meeting between the banking regulator and heads of various banks, the central bank has told the banks not to charge any fee if a customer desires to opt out of a bank either due to a change in employment or a transfer to another city.

"How can you penalise a customer for not offering a service. Secondly, how can a bank have the authority to debit money from their customers account and credit it to their own P&L?" RBI deputy governor KC Chakrabarty told bankers who resisted the move to waive the fee, a banker present in the meeting said on condition of anonymity.

Coming just weeks after freeing savings rates, this diktat by RBI is likely to increase costs for all banks. But the worst-affected are likely to be the private sector and foreign banks who charge high fees for account closures.

The savings rate deregulation has already kicked off a rate war in the industry with aggressive new banks such as YES Bank and Kotak Mahindra increasing their rates to 7% and 6%, respectively. Account closures by people tempted by these high rates are likely to increase and banks are unlikely to have the freedom to impose any costs on such customers.

But customers are likely to feel happy as it would make it easier for them when they move jobs or cities.

"Waiver of fee for closing a deposit account is a natural corollary to waiver of pre-payment fee on floating rate home loans. The customer should have right to freely exit from their loan or deposit account and this should not attract any charge," is the message from RBI, a banker present in the meeting told ET.

The central bank recently persuaded most banks to waive pre-payment penalty for customers who wish to prepay their home loans. Fees on closure of accounts is now on top of its agenda, especially after the Damodaran Committee report on improving customer service advocated that the customer should have a right to a basic savings account with cheque book and ATM card facilities.

The committee was formed to look into banking services rendered to retail and small customers and pensioners. The committee was also mandated to look into the grievance redressed mechanism practiced by banks and suggest measures for expeditious resolution of complaints. It submitted its report in August this year.

All banks charge customers for closing their accounts. In some cases, it is as low Rs 100, but private sector and foreign banks are known to charge anywhere between Rs 500 and Rs 1,000. Recently, HDFC Bank quadrupled its fee to Rs 500 from January 1, 2012.

The meeting with RBI was attended by CMDs of some PSU banks and the CEOs of ICICI Bank, Chanda Kochhar, and HDFC Bank's Aditya Puri.

Officials said the private and foreign banks conveyed to RBI that there is cost involved in close an account which is being levied on the customers.