Banks want to bite your cake and have IT too

RBI has mandated improvements to online funds transfer services ... but they come at a price

This opinion piece  was  first written for

Ever since online banking became feasible for Indian customers, many of them have used this easy method of shifting their funds or making payments . The National Electronic Funds Transfer (NEFT) system in which over 63,000 bank branches participate, has seen India-based account holders make some 6 million online fund transfer transactions every month. The system uses secure Public Key Infrastructure (PKI) technology to fuel the Indian Financial Network (INFINET) which connects bank branches for electronic transfer of funds.

For some weeks now, the online banking website of HDFC Bank has been warning me that some charges would soon be levied for such online payment services. The bank is merely giving me a heads-up on something that will soon become the norm – and I believe we have to thank  the Reserve Bank of India for that. In a manner that government agencies seem to have perfected and patented, the RBI appears to give with one hand, only to snatch back with the other. Consider this:

In early February, RBI sent a circular to all member banks participating in NEFT, with the innocuous title: Refinement of process-flow and enhancement of features. It mandated a number of new features aimed at tightening the funds transfer cycle – including the extension of working hours from 9 am to 5 pm to 7 pm on weekday; and from 9 am to 12 noon to 1 pm on Saturdays. It also asked banks to update the settlement cycle to hourly. If you, assumed like me that merely because our accounts seem to be debited with the speed of lightning whenever we make an online payment, the recipient also got the money likewise – you were wrong. Now apparently it would be done within the hour – but not outside what are normal business hours. Online in this case clearly does not mean 24 by7.

These and other small improvements which you can find in RBI’s circular (I have linked the PDF version here:

//  ) don’t come without a price. A Press Trust of India story said, banks which did not pay RBI any processing charge till now, would be required to do so come April. Needless to say they will without exception bump the charges on to their customers.

Do you see the perverse logic here? When Internet banking became possible in India, customers could avoid going to physical banks for mundane tasks like checking their balance or ordering cheque books. Banks encouraged this. Remember the days with foreign banks like Citibank, charged customers who bothered them by a personal appearance? My corporate account is with HSBC and I have been warned that the somewhat paltry minimum balance in my account does not entitle me to talk to any one in the branch face to face – unless I pay a fee. I can accept the logic that human interaction costs money – the Web is cheaper. But when it suits them, RBI and the banks stand this logic on its head and propose to charge us for doing our payments online rather than the old way. This is called eating your caking and having IT too.

Sad that the nation’s top government regulator of banking has decided to take the first bite into our hard earned money – and encourages all its banking partners to do likewise.--Anand Parthasarathy Bangalore March 2 2010

Footnote: Soon after I wrote this for our partner site, comes news ( this morning) that  government plans to levy a service tax on  online payments by lay Indian users to suppliers of software from abroad.  When you see a nice little piece of   music editing software, or want to install the full ( paid ) version of AVG antivirus  or Traction's Screen Grab utility -- or maybe buy your own web address for  $ 7.99 from GoDaddy,  you can   opt for    an online download  and pay  in dollars through a secure credit card  window or  or a service like Paypal.  Businessline reports that government proposes to levy a 10 percent service tax even on such micro personal transactions on the Web.   For this the  buyers must  register as a service tax payer and file the tax paid, in  returns.

If it is indeed true, this must be one of the most hilariously unworkable  tax proposals to flow from the fertile,  but  technologically challenged brains in the Finance Ministry. How do they propose to monitor or even regulate  such harmless individual software purchases, among the millions of  downloads that occur ever  minute? No lay user of the Internet in India, if he or she has any sense,  will ever use the direct pay and download route for anything except very small bits of software costing the equivalent of Rs  1000 or less. If they  plan on paying more -- the software would be so bulky as to make   direct download a hassle and a risk: our  crawling  connection speeds and   inconsistent infrastructure   makes  that a certainty. In any case   major software like Windows or Photoshop  or a Net Security tool, usually   priced in  tens of thousands of rupees, is  deliberately  sold cheaper  in India than abroad  ( to make pirating unattractive) and is available on  reliable CDs and DVDs. 

You have to understand technology  before you seek to encash it as yet another taxation stream. Go back  and do your homework, babus. This ain't going to work.