The central bank has asked banks to lay down internal principles and procedures so that such exorbitant rate of interest, including processing and other charges, are best avoided.

The apex bank said, "Although interest rates have been deregulated, such rates going beyond a certain level may be seen as usurious and can neither be sustainable nor in conformity with the normal banking prudence.''

However, the RBI advice seems to be falling on deaf ears as recently ICICI Bank, UTI Bank and a few other private sector banks have revised their service charges. All the banks have posted their revised service charges and fees on their website.

Banking Codes and Standards Board of India Chairperson K J Udeshi said, "We will look into these kinds of practices in the course of our field visits, which will commence next month." An ICICI Bank spokesperson said, "The revision is only in certain categories and is benchmarked with the industry.'' 

According to a senior private sector bank official, "Banks like any other service providers are entitled to charge for the services offered. We want to encourage customers to use alternate channels of payments such as Internet. Transaction costs at bank branches are very high. Routing these transactions to the Internet and other electronic channels enables banks to reduce cost.''

Banking transactions executed at a branch will cost a bank around Rs 40. In metros the cost goes up to Rs 70 as the real estate cost is very high. If the transaction is routed through an automated teller machine, the cost comes down to Rs 18. Using a credit or debit card at a point of sale terminal brings down the cost further to Rs 1.

"With margins from core banking activities coming under pressure, banks are looking for other avenues of income generation. In recent times, fee income has become a crucial revenue stream for banks. On an average, around 30 to 40 per cent of profits are due to growth in fee income,'' said a banking analyst.

This is not the first time the RBI has tried sensitising banks against charging high charges. To ensure reasonableness in bank charges, the RBI in association with Indian Banks Association had set up a committee.