Paying for facilities like issuance of demand drafts, cheque books, credit or debit cards and ATM interchange may soon become passe as public sector lender IDBI Bank on Wednesday waived-off all service charges on current and savings accounts (CASA), the first by any bank.
The move is aimed at increasing the bank's below industry-average CASA deposits and the bank expects to double its retail accounts to 1-crore in the next 12-months, IDBI Bank's Executive Director and Group Head Retail Banking, R K Bansal, said.
"Between money that we charge and the relationship with customer, we found the latter to be more important. We will have to forego some costs," its Chairman and Managing Director, R M Malla, said, adding that there would be no impact on the bank's cost to income ratio.
For covering the losses through this offering, the bank will focus more on other services like loan advisory and syndicating large corporate loans which earns a good fee. The cheaper CASA deposit percentage of the bank currently stands at around 14 per cent, lower than the industry average of over 30 per cent.
"With this, we plan to match up with the industry average. I cannot predict if it will happen in six-months or a year," Deputy Managing Director, B P Singh, said.
The waiver applies for all service charges currently charged by the bank, excluding the fee charged for cheque bouncing, Malla said.
The bank will also bear the ATM (automated teller machines) interchange fee paid to other banks for transaction at their machines, Malla said. This will allow IDBI customers to use any ATM as many times as they want without worrying about paying any fees.
To a query as to how long the revolutionary scheme will be operational, Malla did not give a definite answer. "We will like to continue with it for long...all I can say now is that this is going to stay," he said. Currently, customers have to pay for every service which varies according to the amount transacted and from bank to bank.
Such services constitute a significant component of banks' fee-based or non-interest incomes and senior IDBI officials said it will be "very difficult" for other banks to emulate the scheme.
IDBI plans to add another 250 branches to its current 750 within the next 12-months and increase its ATM network by up to 30 per cent, Malla said, adding a greater thrust will also be laid at installing points of sales machines through which banking services can be availed off-site.
The bank is also expecting a better-than-expected rise in deposit growth than the June quarter's 18 per cent through the launch of the new scheme while it is confident of achieving a 20 per cent credit growth this fiscal, a senior official said.
Malla said the bank will be considering equity dilution in the next 12-18-months, but did not divulge any more information as to the route it plans to use. "Government's equity currently stands at 65 per cent and we can take it (down) till 51 per cent," he said. Unlike some of its peers, IDBI Bank is not looking at starting a private equity fund or acquiring any bank, Malla said.
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