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Title: A note on demand draft charges levied by banks in India
Authors: DAS, ASHISH
Keywords: Service Charges
Pricing Structure
Detection Of Outliers
Issue Date: 19-Mar-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 benchmarks and concludes that there is a need to rationalize and bring in uniformity in the amount of service charges for demand drafts.
Appears in Collections:Technical Reports

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