As Currency Makes A Comeback, HDFC Bank Makes Cash Transactions Costlier
HDFC Bank’s customers will now have to pay more for large cash transactions at branches
Currency is slowly returning to the system but banks may make it tougher for customers to transact in cash, if a recent increase in charges announced by India’s largest private sector bank by assets is anything to go by.
HDFC Bank has decided to raise charges levied on cash transactions at its branches with effect from March 1, according to a notification on the bank’s website.The decision was taken to discourage cash transactions and promote digital payments, a spokesperson for the bank told BloombergQuint.
For basic savings and salary accounts, HDFC Bank will now charge Rs 150, excluding taxes and cess, per transaction after four free transactions. Currently, the bank charges Rs 100 per transaction after five free transactions. A transaction, in this case, is either a withdrawal or a deposit.
The bank has also introduced a charge on transactions (cumulative of deposits and withdrawals) above Rs 2 lakh per month at home branches. Once the Rs 2 lakh limit is crossed, a customer will have to pay Rs 5, in addition to taxes and cess, per Rs 1,000 withdrawn or deposited, or Rs 150, whichever is higher, according to the circular.
The limit on the value of free transactions at branches other than the home branch has been reduced from Rs 50,000 per day to Rs 25,000. The charge on exceeding the transaction limit has been set at Rs 5 per Rs 1,000, or Rs 150, whichever is higher.
To be sure, other large private sector banks, including ICICI Bank and Axis Bank, are already imposing similar charges on cash transactions, according to information available on their websites.
SBI, India’s largest bank, does not charge a fee on cash withdrawals from its branches. However, it does charge a fee on deposits. According to a circular listing out revised charges with effect from January 1, 2016, the bank charges a fee of Rs 50 per deposit after five free deposits.
Each bank has its own policy on fees, and they have to charge this on the basis of competition. See, two factors determine the charges, one is the competition in the space and the other is the requirement to recover the cost of service provided.Rajnish Kumar, Managing Director, State Bank of India
Maintaining The Digital Momentum
HDFC Bank’s decision to hike charges on cash transactions comes at a time when the government is making a concerted effort to push the economy towards digital transactions. This started after the government decided to withdraw 86 percent of the country’s currency in circulation by scraping Rs 500 and Rs 1000 notes on November 8.
While the availability of currency has started to normalize slowly, the government and the Reserve Bank of India (RBI) are trying to discourage the use of cash.
In Union Budget 2017, Finance Minister Arun Jaitley announced that cash would no longer be allowed for transactions above Rs 3 lakh. A 13-member committee of chief ministers headed by Andhra Pradesh Chief Minister Chandrababu Naidu had called for the levy of a banking cash transaction tax on transactions above Rs 50,000. The government, however, has not announced any such tax in the budget.
The RBI too has asked banks to help maintain the momentum towards digital payments. While removing withdrawal restrictions on ATMs, the regulator urged banks to “encourage their constituents to sustain the movement towards digitisation of payments and switching over of payments from cash mode to non-cash mode.”
Interestingly, digital transactions have started to fall off as cash availability has improved. Data provided by the RBI shows that the volume of digital transactions fell 10 percent in January compared to December while the value of transactions fell 6 percent. They still remain above the levels reported before the demonetisation.
