There is a flip side to the technological developments in banking. Real time gross settlement (RTGS), ushered in few months back, has turned out to be a boon for customers, but a bane for banks. They are losing interest in remittances business as the golden goose -- float money -- is being killed.
The float is a lapse between the time a bank draft is bought and the money becomes available to the beneficiary. For instance, till recently, a outstation draft would have taken any time between two and five days, depending on the distance, for encashment.
In other words, the money given to a particular bank for buying the draft would have remained with the bank till it was handed over to person to whom the draft was sent. The scenario has changed dramatically with the introduction of RTGS.
Said a senior official of a state-owned bank: "With the inception of RTGS, high-value corporate cheques get cleared within a span of three hours. This leaves us with no float money."
The quantum of float money ran into hundreds of crores, depending on the size of the bank and its remittance business.
"More than the commission on remittances, the float money was a huge attraction for us. We may hike the commission to neutralise the effect," said the chief of a very large public sector bank.
However the regulator paints a different picture. Reserve Bank of India's executive director R B Barman said: "Float money was perceived as an inefficient tool at the use of banks, whereas RTGS is viewed as an instrument focussing on better customer service. Although banks would witness a hit on their remittance businesses, there will be several spin-offs which would help banks overcome this loss."
Highlighting the logistics involved, Barman added, "When banks handled the physical movement of cheques, each transaction cost them an amount between Rs 30 and Rs 50. The new electronic mode of transfer saves this amount for banks. Apart from this, banks also charge customers for the RTGS facility, which is another source of income."
With float money declining with the introduction of RTGS, banks will have to recover not only the transaction fee that the RBI will be charging them, but would also have to compensate for the loss of float-based earnings. On an average, banks' fee income accrues to around 6% of their total income.
Banks, on an average, charge retail customers between Rs 10 and Rs 20 to send funds up to Rs 10,000 to another bank based in another city.
However, this price is expected to lower on account of increasing volumes, coupled with aggressive tactics adopted by banks and the increasing number of bank branches brought under RTGS.
Moreover, as RTGS is a one-time investment, charges are said to decline largely with passage of time.
Bank of India's general manager, IT, D Krishnamurthy said: "RBI may look at an option to publish the rates charged by different banks on RTGS transactions to increase awareness among customers."
