Mumbai: Amid the pandemic, private and public banks are finding new avenues to make money even as stressed customers take a hit.
From convenience fee on recycler machines to processing fee and higher interest on debt recast, banks are making the most of the situation.
Earlier this month, ICICI Bank, the second largest private sector lender in the country, started charging a convenience fee from its customers for cash deposits in recycler machines after business hours on normal days, and on bank holidays starting this month.
Bank of Baroda also imposed higher cash handling charges on customers but withdrew the decision later.
The move prompted the Ministry of Finance to clarify that no public sector bank has increased such charges recently and these banks have intimated that they do not propose to raise charges in the near future either in view of the pandemic.
But ICICI Bank has decided to continue with the convenience fee anyway.
“Effective November 1, a convenience fee of Rs 50 per transaction, will be levied on cash deposited in the cash acceptors/ recycler machines on bank holidays and between 6 P.M. and 8 A.M. on working days,” ICICI Bank said in a communication to its customers.
“The convenience fee would be applicable if the cash deposit in the cash acceptor / recycler machines exceeds Rs 10,000 per month either as single transaction or multiple transactions,” the lender added.
Customers like local shopkeepers and small traders find these machines convenient as they typically deposit cash at the end of the day. And so they will bear the burden of the ICICI Bank move.
A fee of this kind boosts a lender’s fee-based income. Banks, particularly those in the private sector, always focus on garnering fee-based income as they offer banks an income without the risks associated with loans.
ThePrint reached ICICI Bank via email for a comment on the decision to impose the fee but the bank did not respond until the time of publishing this report.
Debt recast processing fee
Private banks were also quick to realise that the one-time debt recast scheme approved by the Reserve Bank of India in August, is an avenue to boost fee income.
The scheme was applicable for all borrowers whose income was impacted due to the pandemic.
While public sector banks (PSBs) have clearly communicated that there is no processing fee for loan restructuring for retail borrowers, private lenders have made no such commitments.
Some of these lenders are charging a fee as high as 0.5 per cent of the loan outstanding, said banking industry sources. This means that if Rs 20 lakh is due on your home loan, you have to pay Rs 10,000 as processing fee plus 18 per cent goods and services tax to get the recast approved.
Lenders are also waiving processing fee on fresh loans, fully or partially, particularly during this festive season.
“The borrowers are already stressed, which is the reason their loans are being restructured. That is why we do not impose any processing fee,” said the chief executive of a mid-sized public sector bank when asked why PSBs are not charging a processing fee.
Higher interest rate
Not only processing fee, banks — both public and private — are also charging higher interest rates for the debt recast.
State Bank of India (SBI), the country’s largest lender, is charging an additional 35 basis points (bps) while most private lenders are charging up to 50 bps higher rate. This means that if a home loan customer was paying 8 per cent on a home loan, after the restructuring the rate will be 8.35 per cent for SBI customers and 8.5 per cent for private bank customers.
Banks say they are charging higher rates as there is a provision requirement of 10 per cent for the loans that are restructured, as mandated by the RBI.
“The 10 per cent provision has a cost. That cost is 70 bps for us. We decided to bear 35 bps of that and pass 35 bps to the customer,” a top SBI official told ThePrint on condition of anonymity.
While some private banks are charging 50 bps more for loan recast, some are also charging as high as a full percentage point, banking industry sources said.
But unlike PSBs, private lenders have not informed the interest rate or the processing fee on their website.
HDFC Bank and ICICI Bank did not respond to queries on the processing fee and interest rate for loan restructuring.
In past corporate debt recast cases, lenders usually refrained from charging a higher interest rate. The reason was that if a unit was not viable at a particular interest rate, then it couldn’t be viable at a higher rate, said a senior PSB official who didn’t wish to be identified.
But in the Covid-related debt recast, PSBs have said restructuring of corporate loans will attract a higher rate. However, large corporate entities have a higher negotiating power as compared to small borrowers like retail and micro and small enterprises.
The RBI norms say higher provisioning on restructured loans can be reversed once 20 per cent of the principal amount is repaid by the borrower.
Most PSBs, like SBI, have decided to reverse the higher interest once that cut off is reached. But some private banks have decided on a higher cut off – as they reserve the interest rate only after the borrower repays 30 per cent of the loan amount, said sources.
With these fees and charges, banks have made the cost of the Covid related-debt recast, at least for small borrowers, prohibitively high.