The Reserve Bank of India (RBI) is reportedly urging banks to cut fees on several consumer products, a move that could threaten the billions of rupees banks earn from such charges. People familiar with the matter told Bloomberg that RBI officials have recently asked lenders to reduce service charges like those on debit cards, penalties for failing to maintain minimum balances, and late-payment fees. The central bank hasn’t issued any public statement or replied to media queries.
This push comes at a time when Indian banks have been rapidly expanding into retail lending to diversify after earlier losses from bad corporate loans. Growth in personal loans, car financing and small-business credit has turned the retail segment into a lucrative business, but it has also drawn the RBI’s scrutiny.
According to the sources, the RBI is especially concerned about fees that disproportionately affect low-income customers. It hasn’t set fixed limits, leaving banks to decide their own rates. Currently, processing fees on retail and small-business loans range between 0.5 percent and 2.5 percent, with some banks capping home loan charges at Rs 25,000 (about USD 285), data from online marketplace BankBazaar show.
Fee income at Indian banks is already recovering. In the June quarter, it rose 12 percent year-on-year to about Rs 510.6 billion, compared with 6 percent growth in the previous quarter, according to India Ratings & Research. Meanwhile, the Indian Banks’ Association is reportedly discussing over 100 retail products that may come under RBI review, as the regulator also looks at large differences in what customers pay for the same services.
