Dimand Draft
mand draftTechnical Report 2010
A note on demand draft charges levied by banks in India
Ashish Das, Rajeev Kumar and Prasanna Kumar
Department of Mathematics
Indian Institute of Technology Bombay
Mumbai-400076, India
Indian Institute of Technology Bombay
Powai, Mumbai-400 076, India
A note on demand draft charges levied by banks in India
Ashish Das1, Rajeev Kumar2 and Prasanna Kumar3
Department of Mathematics
Indian Institute of Technology Bombay
Mumbai-400076, India
March 18, 2010
Abstract
In this paper we study the service charges levied by banks on demand drafts in India. Though
RBI advocated reasonability of service charges for demand drafts as early as February 2007, it did not prescribe any explicit thresholds or measures of reasonability. We try to propose a rationalization of such charges by looking into the demand draft charges of 37 select banks comprising 89% of the network of bank branches in India. It is observed that among the select banks the highest service charge for issue of demand draft (having value upto Rs. 10,000) is Rs.
550 while the same is Rs. 1000 for cancellation. Similarly, for issue of demand drafts, having value more than Rs. 10,000, such charges range from 0% to 0.45% of the draft amount. After more than 36 months of RBI’s advice to banks on reasonability of service charges for demand draft issue, we find that more than 10% of the banks have not prescribed a ceiling for demand draft charges. Also, among those who have set a cap, the maximum demand draft charge has been set as high as Rs. 30,000. The analysis carried out here has an underlying premise that competitive market pricing is required to safeguard consumer interest, and if market fails to have a pricing structure which is competitive, it becomes imperative to take recourse to public policy to protect consumer interest. Focusing at the reasonability of service charges levied by banks for issuing demand drafts, the study provides
A note on demand draft charges levied by banks in India
Ashish Das, Rajeev Kumar and Prasanna Kumar
Department of Mathematics
Indian Institute of Technology Bombay
Mumbai-400076, India
Indian Institute of Technology Bombay
Powai, Mumbai-400 076, India
A note on demand draft charges levied by banks in India
Ashish Das1, Rajeev Kumar2 and Prasanna Kumar3
Department of Mathematics
Indian Institute of Technology Bombay
Mumbai-400076, India
March 18, 2010
Abstract
In this paper we study the service charges levied by banks on demand drafts in India. Though
RBI advocated reasonability of service charges for demand drafts as early as February 2007, it did not prescribe any explicit thresholds or measures of reasonability. We try to propose a rationalization of such charges by looking into the demand draft charges of 37 select banks comprising 89% of the network of bank branches in India. It is observed that among the select banks the highest service charge for issue of demand draft (having value upto Rs. 10,000) is Rs.
550 while the same is Rs. 1000 for cancellation. Similarly, for issue of demand drafts, having value more than Rs. 10,000, such charges range from 0% to 0.45% of the draft amount. After more than 36 months of RBI’s advice to banks on reasonability of service charges for demand draft issue, we find that more than 10% of the banks have not prescribed a ceiling for demand draft charges. Also, among those who have set a cap, the maximum demand draft charge has been set as high as Rs. 30,000. The analysis carried out here has an underlying premise that competitive market pricing is required to safeguard consumer interest, and if market fails to have a pricing structure which is competitive, it becomes imperative to take recourse to public policy to protect consumer interest. Focusing at the reasonability of service charges levied by banks for issuing demand drafts, the study provides
References: [1] Courier / Postal Charges Levied by Commercial Banks in India. RBI. June 09, 2008. September 11, 2008. DPSS.CO.No. 611/03.01.03(P)/2008-09 dated October 08, 2008. RBI/2009-10/57 DBOD.No.Leg. BC.9 /09.07.006/2009 -10 dated July 1, 2009 http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=5071&Mode=0 [5] Payment and Settlement Systems Act, 2007. [6] Report of the Working Group to formulate a scheme for ensuring reasonableness of bank charges. RBI/2006 2007/245 DBOD.No.Dir.BC.56 /13.03.00/2006 -2007 dated February 02, 2007. (CHD) No. 873 / 03.09.01/ 2008-09 dated November 24, 2008. September 10, 2009.