latest transaction/atm charges by banks is bad economics

customers of banks are trapped in a tight spot where the government wants them to keep as much money as possible in banks and shift to digital transactions, on the contrary, banks have united to levy transaction/ atm charges for cash withdrawals and deposits. this is an evident case of exploitation of customers who will have no other choice than to pay or reduce velocity of circulation of money, a greater evil.

what is banking? someone with surplus money hands over this extra to a responsible party which can lend it to someone in need. the difference in rate of interest between these two transactions is what this responsible party – in this case the banks – can claim as legitimate profit.

while indian banks may have cited operational costs as a reason to charge customers, it was upon them to maintain operational costs at such levels that the customers weren’t burdened.

non-performing assets are plunging banks into losses or shrinking profits and they are one of the causes why banks went for this unprecedented decision. other causes are high salaries paid to staff of many public sector banks, let alone the top management, although productivity has ever remained sub-optimal.

the irony is that while fresh graduates are chasing bank jobs to secure their career as well as to fetch lucrative salaries, public sector banks never factored in these rising costs while planning. costs also arose due to superfluous perquisites being offered to employees and unwanted costs incurred owing to technical glitches ranging from dysfunctional atms to server connectivity hiccups.

imprudent lending by unprofessional staff has resulted in bad loans and the burden has fallen squarely on innocent depositor who is now fetching lower rate of interest, with additional oppressive transaction/ atm charges as a new addition.

the banks had to choose from reducing their cost of operations through rationalization or charging extra from customers to sustain operations, sadly they went for the latter, thereby undermining prudent economic equations.

and if banks believe that this act will bring an end to their woes, they are yet again committing a blunder by deteriorating economic theories further. why would someone pay to deposit cash in the bank, why not keep it with self (thus sinking casa ratio)? and limits on atm withdrawals will only reduce velocity of circulation of cash in unorganized market of india (thus shrinking economic activity and job growth).

yes, these new transaction/ atm charges are nothing but a clear case of oppression of customers who will have no other option than to pay, for this market has imperfect competition with limited choices to customer who needs to buy an ‘essential commodity’, a savings bank account, from any one of the players in the ‘cartel’.