The Reserve Bank of India (RBI) is reportedly urging banks to reduce fees on certain consumer services.
According to sources familiar with the matter, this move could impact the large revenue banks earn through such charges.
RBI officials have told banks in recent weeks that they want a cut in service charges, including fees on debit cards, penalties for not maintaining minimum balance, and charges on late payments.
These discussions were private, and the RBI has not made an official statement, as reported by Bloomberg.
This comes at a time when many Indian banks have shifted focus to retail lending to reduce risks after earlier losses from bad corporate loans.
With increasing demand for personal loans, car finance, and small business loans, retail lending has become a profitable area. However, the central bank has raised concerns about the rapid growth in this sector.
The RBI is especially concerned about fees that affect low-income customers in India, the world’s most populous country.
While the RBI has not set specific limits, it has left the decision to reduce charges to individual banks, according to sources.
Processing Fees
Currently, there are no fixed limits on how much banks can charge. Processing fees for retail and small business loans generally range between 0.5% and 2.5%.
For home loans, some banks cap fees at ₹25,000 (around $285), based on data from BankBazaar, a financial services platform.
Indian banks are beginning to see a recovery in fee income this financial year, after a slowdown in previous quarters.
In the April-June quarter, fee income grew by 12% year-on-year to ₹510.6 billion, compared to 6% growth in the previous quarter, according to India Ratings & Research.
The Indian Banks’ Association is also in talks with lenders about over 100 retail products that may come under RBI’s review.
The central bank has also noticed major differences in the fees charged to different customers for the same services, which is drawing further scrutiny.
