Key Highlights
- Rs 2,331 crore earned by PSBs in FY 2023–24 via penalties.
- SBI ended penalties 5 years ago; other PSBs followed recently.
- Savings account interest has dropped to nearly 2.5 percent.
Mumbai: After opening a savings account, banks often mandate certain rules — one of them being the maintenance of a minimum balance. Recently, this rule has been in the spotlight as several public sector banks (PSBs) have abolished penalties for not maintaining a minimum balance, though private sector banks are yet to update their policies.
Why Did Government Banks Scrap Minimum Balance Requirement?
Two senior bankers stated that removing the penalty will not significantly impact banks' earnings. They believe it will enhance financial inclusion by encouraging more people to open accounts without the fear of penalties for low balances. A banker said the aim is to reduce pressure on account holders and expand banking services.
Which Banks Have Ended the Penalty?
SBI had removed the minimum balance penalty five years ago. Recently, other PSBs including Canara Bank, PNB, Indian Bank, Bank of Baroda, and Bank of India followed suit after conducting internal studies. They concluded that operations could continue efficiently even without revenue from such penalties.
Declining Savings Interest Rates
Banks are currently facing challenges due to a lower deposit base. For instance, SBI’s savings deposit base grew only by 2.8 percent in FY 2024–25, while HDFC Bank saw a growth of 5.3 percent. As interest rates on savings accounts have dropped to around 2.5%, many people are shifting toward equity markets or fixed deposits for better returns.
Earnings from Penalties Were Substantial
According to Minister of State for Finance, Pankaj Chaudhary, PSBs earned Rs 2,331 crore in FY 2023–24 from minimum balance penalties. This formed 0.3 percent of their annual revenue, per Capitaline data. While the income may seem marginal, some analysts estimate public banks could lose up to Rs 1,700 crore due to the change.
Public Banks Losing Deposit Share
Between March 2020 and 2025, PSBs' share in total bank deposits dropped by 580 basis points to 55.8 percent, while private banks' share increased by 570 basis points to 35.2 percent, as per RBI data. Despite greater public trust in PSBs, their deposit growth lags behind private peers.
What Is Average Monthly Balance (AMB)?
AMB is the average minimum amount that must be maintained in a savings account monthly. Falling below this limit used to attract penalties. Banks that have scrapped this requirement now offer customers greater flexibility and peace of mind.
