The Hindu Business Line : Be ready, banks may charge you more

NEXT time you want to make a demand draft, get a bank guarantee or even just apply for a new cheque-book, be prepared to dig deeper into your pockets to pay a heftier commission to your friendly neighbourhood bank! And while you are at it, better brace yourself to cough up more money wherever there is a processing charge attached.

These are merely some of the post-Budget blues that bank customers are going to have to contend with, once the Finance Bill is passed.

As a result of the hike in service tax to 10 per cent in the Union Budget 2004-05, from 8 per cent earlier, banks will have to pay additional tax on services rendered which in turn will push up their transaction costs and which will `naturally' be passed on to the customer.

Before you start grumbling about this, rest assured that bankers don't seem too thrilled about this prospect either.

In fact, according to banking sources, the Indian Banks' Association (IBA) is considering taking up the issue with the Finance Ministry.

For one thing, bankers say, they need more `clarity' in certain areas.

For e.g. on service tax being levied on cheques.

Does this mean that the commission charged on issuing a chequebook, will be taxed?

Or does this mean that the bank will be taxed on its collection chargers, i.e., in the commission charged on crediting out-station cheques? At the present time, no one seems to be sure on the interpretation.

As regards the administrative hassles, bankers contend that collecting this kind of tax at the branch level will prove to be exasperating as each branch will have to separately register with the service tax authority.

It is understood that the IBA may even seek exclusions in some cases, where `very small collections' are involved. These could be in the cases of commission charged on the collection of university fees, or issuing of UPSC forms etc, sources said.

There are also bankers who are confident that passing on the burden of service tax to their customers, will not impact their business in any way.

"Are people going to stop coming to banks just because the commissions are hiked? Or are they going to stop taking loans because the processing fee is increased? There is no major cause for concern," said a senior banker. "As regards DDs, they will be redundant in the near future anyway with most banks going in for core-banking solutions and with the concept of anywhere banking coming of age. Also with more banks coming into the RTGS fold, transaction costs will also come down in the future," he said.

In the meantime, when the new Finance Bill gets passed, the customer may still be king, so what if he has to pay a higher price to be treated like one!

More Stories on : Banking | Budget | Taxation

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