The issue of penal charges for not maintaining an average monthly minimum balance (AMB) in savings accounts has been a topic of significant concern for many customers. This article addresses the details of these charges, the criteria used by public sector banks for calculating them, and the government’s stance on rationalizing these charges. Based on the Lok Sabha Unstarred Question No. 1098, answered on July 29, 2024, we delve into the specifics of these penalties and the principles of reasonableness applied in their imposition.
Charges for Not Maintaining AMB
Public Sector Banks in India have been charging customers for not maintaining the stipulated average monthly balance in their savings accounts. The amount charged by various banks over the last five years is substantial. Here’s a brief look at the figures:
- Bank of Baroda: Increased from ₹105.17 crores in FY 2019-20 to ₹386.51 crores in FY 2023-24.
- Bank of India: Increased from ₹181.52 crores in FY 2019-20 to ₹194.48 crores in FY 2023-24.
- Canara Bank: Increased from ₹239.88 crores in FY 2019-20 to ₹284.24 crores in FY 2023-24.
The charges vary across banks, with some like the State Bank of India ceasing to levy these charges since March 2020.
Criteria for Calculation
The Reserve Bank of India (RBI) has issued circulars outlining the guidelines for penal charges on non-maintenance of minimum balances. Banks are allowed to set their charges based on their Board Approved Policy, ensuring that the penal charges are a fixed percentage of the difference between the actual balance and the required minimum balance. The guidelines also stipulate:
1. Customer Notification: Banks must inform customers about the minimum balance requirement at the time of account opening and any subsequent changes.
2. Notification of Penal Charges: If the minimum balance is not maintained, banks must notify customers of the penal charges and give them a month to replenish the balance.
3. Prevention of Negative Balance: Savings accounts should not turn negative solely due to the imposition of penal charges.
Principles of Reasonableness
The principles of reasonableness in fixing these charges involve ensuring that the charges are commensurate with the services provided to savings bank accounts. The RBI’s guidelines require banks to provide certain basic services free of charge under the Basic Savings Bank Deposit Account (BSBDA) scheme. These include:
- Cash deposits at bank branches and ATMs
- Receipt of money through electronic channels
- No limit on the number of deposits per month
- A minimum of four withdrawals per month, including ATM withdrawals
- ATM cards or ATM-cum-debit cards
Banks can offer additional value-added services free of charge as per their Board Approved Policy.
Government’s Stance on Rationalization
The government has been considering rationalizing the charges on non-maintenance of minimum balance in savings bank accounts. The aim is to make these charges more reasonable and reflective of the services provided. However, as of now, there have been no specific details released regarding the proposed rationalization.
Conclusion
The issue of penal charges for not maintaining an average monthly minimum balance in savings accounts is complex, involving various criteria and principles of reasonableness. While public sector banks have been levying significant charges over the past years, the guidelines set by the RBI ensure a degree of fairness and transparency. The government’s proposal to rationalize these charges is a step towards making banking more customer-friendly and equitable. It remains to be seen how these changes will be implemented and their impact on both banks and customers.
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GOVERNMENT OF INDIA
MINISTRY OF FINANCE
DEPARTMENT OF FINANCIAL SERVICES
LOK SABHA
UNSTARRED QUESTION NO. 1098
ANSWERED ON MONDAY, JULY 29, 2024/ 7 SHRAVAN, 1946 (SAKA)
Penalty for not maintaining Average Monthly Minimum Balance
1098. Com. Selvaraj V:
Shri Subbarayan K:
Smt. Mala Roy:
Will the Minister of FINANCE be pleased to state:
(a) whether Public Sector Banks taking charges for not maintaining Average Monthly Balance (AMB) from the customers;
(b) if so, the details of amount charged by various banks during the last five years, bank-wise;
(c) the criteria for calculation of charges for non-maintenance of minimum balance in SB accounts and if so, whether these rates are reasonable for the services provided to SB accounts;
(d) the principles of ‘reasonableness’ adopted in fixing these charges; and
(e) whether the Government proposes to rationalise the charges on non-maintenance of minimum balance in SB accounts and if so, the details thereof along with the details of ‘free’ services provided to the customers by the banks?
Answer
THE MINISTER OF STATE IN THE MINISTRY OF FINANCE (SHRI PANKAJ CHAUDHARY)
(a) to (e): Reserve Bank of India (RBI) vide its circulars dated 20.11.2014 and 01.07.2015 has laid down guidelines regarding levy of penal charges on non-maintenance of minimum balances in savings bank accounts and regarding customer service in banks. Banks were permitted to fix penal charges regarding non-maintenance of minimum balance in savings account, as per their Board Approved Policy, while ensuring that penal charges should be a fixed percentage levied on the amount of difference between the actual balance maintained and the minimum balance as agreed upon at the time of opening the account. Accordingly, Banks have formulated slab structures for recovery of charges considering different geographies and segments.
Further, RBI, vide its circulars dated 26th December 2002 and 20th November 2014, regarding ‘Minimum balance in savings bank accounts’ and ‘Levy of penal charges on non-maintenance of minimum balances in savings bank accounts’, requires the banks:
i. To inform the customers regarding the requirement of minimum balance at the time of opening the account. Any subsequent changes should also be intimated to the account holders.
ii. In case of non-maintenance of minimum balance, the bank should notify the customer about the penal charges which will be applicable if the balance is not replenished within one month from the date of notice.
iii. It should be ensured that savings account does not turn into negative balance solely on account of levy of charges for non-maintenance of minimum balance.
The amount charged by various banks for not maintaining minimum balance in savings bank accounts from the customers during the last five years, is at Annexure
As per guidelines, following basic minimum facilities are being provided to account holders under Basic Savings Bank Deposit Account (BSBDA), free of charge, without any requirement of minimum balance:
i. Deposit of cash at bank branch as well as ATMs/CDMs.
ii. Receipt/ credit of money through any electronic channel or by means of deposit /collection of cheques drawn by Central/State Government agencies and departments.
iii. No limit on number and value of deposits that can be made in a month.
iv. Minimum of four withdrawals in a month, including ATM withdrawal.
v. ATM Card or ATM-cum-Debit Card.
For all other type of bank accounts, banks are competent to provide any value added service, free of cost, as per their Board Approved Policy.
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| Annexure as referred to in part (b) of the Lok Sabha Unstarred Q. No. 1098 regarding “Penalty for not maintaining Average Monthly Minimum Balance” due for answer on 29.07.2024 (Rs. In Crores) | ||||||
| S. No. | Bank | FY 2019-20 | FY 2020-21 | FY 2021-22 | FY 2022-23 | FY 2023-24 |
| 1 | Bank of Baroda* | 105.17 | 118.13 | 307.49 | 333.33 | 386.51 |
| 2 | Bank of India* | 181.52 | 121.29 | 150.08 | 180.16 | 194.48 |
| 3 | Bank of Maharashtra** | 49.19 | 72.03 | 108.47 | 114.15 | 126.95 |
| 4 | Canara Bank** | 239.88 | 177.38 | 230.28 | 226.11 | 284.24 |
| 5 | Central Bank of India** | 99.03 | 82.29 | 135.2 | 142.52 | 128.17 |
| 6 | Indian Bank** | 141.17 | 342.86 | 316.89 | 296.27 | 369.16 |
| 7 | Indian Overseas Bank* | 2.25 | 4.04 | 4.42 | 4.46 | 4.58 |
| 8 | Punjab & Sind Bank* | Nil | Nil | Nil | 15.80 | 39.44 |
| 9 | Punjab National Bank* | 238 | 141.03 | 85.77 | 439.67 | 633.4 |
| 10 | State Bank of India# | 640.19 | Nil | Nil | Nil | Nil |
| 11 | UCO Bank* | 0.09 | 0.04 | 13.37 | 15.45 | 37.49 |
| 12 | Union Bank of India* | 41.16 | 83.04 | 76.56 | 87.51 | 126.66 |
*Charges levied on non maintenance of Quartely Average Balance
**Charges levied on non maintenance of Average Monthly Balance
# State Bank of India is not taking Average Monthly Minimum Balance charges from the customers since March 2020
