Lashing out at India’s banking system, Aam Aadmi Party (AAP) MP Raghav Chadha claimed on Wednesday that public trust in the system is eroding due to rising fraud, high loan interest rates and poor financial security for depositors.
On Wednesday, Parliament passed the Banking Laws (Amendment) Bill, 2024, which allows bank account holders to have up to four nominees, with the Rajya Sabha approving it by a voice vote. The Lok Sabha passed The Banking Laws (Amendment) Bill in December 2024.
Speaking in the Rajya Sabha, during a discussion on the Banking Laws (Amendment) Bill, 2024, Chadha also criticised the legislation as a mere procedural reform that fails to address key concerns of citizens.
Chadha said banks are not just financial institutions but the foundation of democracy, playing a crucial role in people’s lives. However, increasing banking frauds, high lending rates and declining savings interest rates are pushing people away from the formal banking system, he claimed, AAP said in an official statement
Punching holes into the Amendment Bill, the AAP leader pointed out that home loan interest rates have risen to 8.5-9 per cent, while education loan interest rates now range from 8.5 per cent to 13 per cent.
These rates have made housing unaffordable for young individuals and higher education excessively expensive, pushing students into debt even before they start earning, he said. The MP urged the government to cap interest rates and provide subsidised loans to first-time homebuyers.
Fixed deposit (FD) returns at 6.5 per cent are lower than the 7 per cent inflation rate, meaning people’s savings are losing value, he alleged. “Retired individuals and small depositors should receive a minimum 8 per cent interest rate to safeguard their savings,” he said.
Chadha claimed that over 36,000 banking fraud cases were reported in 2024, with digital payments and loan fraud among the most common. He noted that cyber fraud led to financial losses amounting to Rs 2,054.6 crore and that UPI-related fraud increased by 85 per cent. Public sector banks (PSBs) reported the highest number of fraud cases, eroding people’s confidence in the system, he claimed.
He further recommended that banks allocate at least 10 per cent of their IT budgets to cybersecurity and implement biometric authentication for high-value transactions. Chadha also raised concerns over fraudulent activities linked to Know Your Customer (KYC) updates. “People receive a phone call and in the blink of an eye, their accounts are emptied,” he said.
He cited reports suggesting that 70 per cent of banking frauds occur after KYC updates. According to the statement, Chadha also criticised the closure of over 3,000 bank branches in 2022-23, mostly in rural areas, forcing villagers to travel long distances for banking services.
He alleged that Indian consumers pay nearly Rs 7,500 crore annually in hidden banking charges, including ATM fees, account maintenance fees and penalties for not maintaining minimum balances. He urged the Reserve Bank of India (RBI) to regulate these charges and ensure faster complaint resolution for customers.
Chadha said credit card debt is pushing the middle class into financial distress and that excessive loan recovery pressure is affecting bank employees. He urged the government to promote financial literacy, regulate loan recovery practices and provide better working conditions for banking staff.
Without major reforms, Chadha said, public confidence in India’s banking system would continue to decline, impacting millions of citizens who rely on banks for savings and financial security.
