Banks may reduce processing fees on retail products, as spending will increase during the festive season; RBI issues directive

To boost the economy during the festive season, the RBI has instructed banks to lower fees on certain retail products, like debit cards. With GST reforms starting Monday, if banks cut these fees, it could significantly increase demand and spending.

Banks worry that such fee cuts could result in billions of rupees in lost revenue. Sources report that the RBI's suggested reductions mainly target debit cards, minimum balance charges, and late payment fees.

Additionally, the Indian Banks' Association is reportedly discussing fee reductions on over 100 retail products, which the RBI may be monitoring. The central bank is concerned about the wide variation in fees for similar products and is especially alert to fees that unfairly burden low-income customers. While the RBI has not set specific fee caps, banks have the discretion to set their own.

Currently, processing fees for retail and small business loans typically range from 0.5% to 2.5%. Some banks have limited home loan processing fees to ₹25,000. After a period of slow growth, fee income for Indian banks is beginning to pick up this fiscal year.
Data from India Ratings and Research shows banks earned ₹510 billion in the June quarter—up 12% year-on-year, compared to a 6% increase in the March quarter.

RBI Governor Sanjay Malhotra criticized banks and NBFCs for rising customer complaints, urging them to improve services and resolve issues within a set timeframe. He recommended that senior officials, including MDs and CEOs, dedicate time weekly to address this. Complaints under the RBI's Unified Ombudsman Scheme have grown by an average of 50% annually over two years, reaching 9.34 lakh in 2023-24.