Nagpur traders flag rising bank charges despite digital payment push

Promoting digital payments is certainly a good step for the country, but the steadily rising cost of banking and payments for small and medium traders as well as ordinary customers is not right either. This was stated by CA Kailash Jogani, president of the Nagpur Chamber of Commerce.

According to Jogani, on one hand rules and limits on cash transactions for traders keep increasing, while on the other hand various charges are being levied for depositing cash, withdrawing cash, maintaining minimum balance, different banking services and using ATMs.

The purpose of bringing in technology and digital banking was to make transactions faster, easier and cheaper. But as technology advanced, banking charges kept rising too. This raises the question of how much benefit customers and small traders are actually getting from it.

Under Section 40A(3) of the Income Tax Act, cash business expenses of more than Rs 10,000 a day are generally not allowed as a deduction, while Section 269ST generally bars accepting cash of Rs 2 lakh or more, barring certain exceptions.

Meanwhile, the new high-MDR system introduced alongside the push for digital payments is also proving costly for traders. The government should therefore ensure that policies promoting digital payments do not impose charges that force traders to split large amounts into smaller parts or turn back to cash payments.

The Chamber has placed several demands before the government. These include a full review of banking charges levied on small traders, streamlining unnecessary or extra charges on cash deposits and withdrawals, keeping digital and UPI payments as cheap options, ensuring customers and traders benefit from increased use of technology through lower charges and better service, strengthening transparency and uniform rules in large loan accounts and NPA cases, and taking into account the paying capacity of small businesses and ordinary customers while fixing charges.

Jogani said rising bank profits are not wrong in themselves, since a strong and profitable banking system is necessary for economic stability. But it should also be ensured that the cost of the banking system is not disproportionately passed on to small depositors, small businessmen and ordinary customers. He said transparency and uniform rules on large loan accounts and NPA accounts are also needed to maintain public trust, adding that ordinary customers want to know why those who pay their small loans and bank charges on time are repeatedly burdened with new charges.

According to RBI data, the net profit of scheduled commercial banks in 2023-24 was around Rs 3.50 lakh crore. During the same period, total NPAs stood at around Rs 4.81 lakh crore, and the average net interest margin of banks was around 3.3 percent. This raises the question of why charges for common banking services should rise rather than fall in many cases, even as the banking system rapidly adopts technology and becomes more digital, reducing dependence on branches and paperwork.

RBI documents also mention customer complaints about service and user charges being raised without reason. A large part of banks' earnings comes from the gap between the interest paid on deposits and the interest charged on loans, which the RBI measures through indicators such as net interest margin. This gap is necessary for the banking system, but small businesses and ordinary customers have the right to ask who ultimately bears the burden of the real difference between deposit and loan interest rates and of the various separate charges.