In the last three years, savings account holders have paid nearly Rs 10,000 crore to banks as penalties for not maintaining the minimum balance, according to the numbers presented by the government in the Lok Sabha. This is a huge amount collected by banks from account holders as penalties. Of the total amount, 18 public sector banks collected Rs 6,155 crore. Four major private sector banks have collected Rs 3,567 crore as a penalty for non-maintenance of minimum balance.
The New Indian Express carried a report dated July 23, 2019, which mentions one Mahesh Kumar, 38, residing in Bengaluru, being fined by his bank in 2017 for not maintaining the minimum balance in his savings account. In September 2016, his son Shreyas was asked to open an account by his school at a particular private bank branch for receiving his scholarship. Kumar opened a joint savings account with his son. While opening an account, Kumar deposited Rs 1000 as it was the minimum balance that was required to be maintained in the bank account. However in April and July 2017, without intimating Mahesh, the bank had deducted Rs 114 and Rs 371 respectively as a penalty, stating that the minimum balance was not maintained in the account. He got to know of this only in July 2017, while updating bank passbook by visiting the branch. While inquiring about the charges, the bank branch manager informed that the minimum balance in a savings account was hiked to Rs 3000 from Rs 1000 earlier and all customers were informed by SMS/email as per RBI guidelines. However, Kumar did not receive any SMS or email communication from the bank about it. He complained to the bank branch with proof and the bank reversed the deducted penalty amount by the end of July 2017. The story doesn’t end there.
In July 2017, Kumar deposited an additional Rs 2000 in the savings account to meet the bank’s minimum balance norms. But, in the months of September and October of 2017, the bank again charged Rs 79 and Rs 2, respectively, stating that they were penalties for non-maintenance of minimum balance in the account. Later, Mahesh decided to raise a complaint against the bank on minimum balance penalty debited from his account with the consumer forum. Recently, Mahesh won the case against the bank, as he had all the evidence in his favour. The Rs 81 deducted from the account was reversed by the bank. The forum imposed a penalty of Rs 6000 on the bank. It was to be paid to Mahesh and included Rs 1000 as compensation and Rs 5000 as litigation cost incurred.
RBI guidelines for levying penalty
When you fall short of the minimum balance requirement according to the bank’s policy, it should notify you, the account holder, through SMS/email or a letter. The bank should allow a month to restore the balance from the notified date; if not, penalty charges will be applicable. If the minimum balance required in the account is changed, that also needs to be communicated by the bank to the account holder. In case the bank fails to notify you about the changes, you can file a complaint against the bank.
Even if you are unable to maintain the minimum balance required, banks cannot levy such high charges that your balance turns negative. Instead, they must reduce the services available to that of basic savings bank deposit account. Once the balance is restored, then the bank should convert the account back to a regular one with all features given earlier.
Savings accounts opened under the Pradhan Mantri Jan Dhan Yojana (PMJDY) and basic saving bank deposit accounts are exempted from fines levied for non-maintenance of minimum balance.
What banks charge
Private sector banks charge account holders substantial penalties for non-maintenance of minimum monthly balance compared to public sector banks. For instance, HDFC bank charges Rs 150 to Rs 600 as penalty for non-maintenance of minimum average balance, depending on how much funds the account has. Foreign banks such as Standard Chartered charge five per cent of the shortfall in monthly average balance with a maximum cap of Rs 500, while a public sector bank such as SBI levies Rs 7.5 to Rs 15.
Several banks including State Bank of India, ICICI bank, HDFC bank, etc. allow you to check your average monthly balance using the net-banking facility. Use this feature to your advantage and maintain the average balance requirement in your savings account.
The average monthly balance requirement varies for the bank branches in metro, urban, semi-urban and rural areas.
Calculating the average balance
The minimum balance requirements and penalty charges vary from bank to bank. In December 2002, RBI allowed banks to charge a penalty for non-maintenance of minimum balance. Banks introduced the concept of a minimum average quarterly balance (AQB). Says financial advisor Nitin Bhatia, “The biggest disadvantage was that irrespective of the shortfall, charges levied were fixed. The penalty banks charged were Rs 750 plus taxes even if the shortfall was Re 1 or Rs 3000.”
To fix this issue, in November 2014, the RBI came out with new guidelines on charges levied for non-maintenance of minimum balances in savings account. These rules came into effect from April 2015. According to these guidelines, now the penalty for non-maintenance of minimum balance requirement is proportionate to extent of the shortfall.
For instance, in HDFC bank the minimum balance you need to maintain in your account is Rs 10,000 in metro and urban branches; it is Rs 5,000 in semi-urban and rural branches. The penalty charges are calculated based on the extent of the shortfall.
Let’s consider an account holder with HDFC bank from Mumbai (metro-city). In the month of May 2019 (31 days), say, an account holder maintains Rs 12,000 for the initial 10 days of the month, Rs 10,000 for next 10 days and Rs 9000 for the remaining 11 days. The average monthly balance in her account is calculated as: [(12,000×10)+(10,000×10)+(9,000×11)]/31 = Rs 10,290. This is higher than average minimum balance requirement of Rs 10,000.
However, if the average balance for the last 11 days were Rs 8,000, the average minimum balance would have dropped to Rs 9935. So, the bank would have charged Rs 150 plus taxes. Similarly, if the average minimum balance was between Rs 5000 and Rs 7500 the bank would have charged a penalty of Rs 300 plus taxes; maintaining a balance of between Rs 2500 and Rs 4999, she would have incurred a penalty of Rs 450 plus taxes. If the balance were less than Rs 2500, Rs 600 plus taxes would have been levied.
Many salaried people hold multiple bank accounts as they change jobs or shift to new cities. In such cases, some banks convert zero balance salary accounts into regular savings accounts after a couple of months, as there are no salary credits. So, you are expected to maintain a minimum average balance in those non-salary savings accounts. It is better to close any dormant accounts. Make sure that your EMIs and investments are linked to the accounts that you regularly use and where you are able to maintain the minimum balance. Also, as mentioned earlier, use your net banking facility to check periodically if your balance is adequate to meet your bank’s requirements.