Penalty in the name of minimum balance

A savings bank account is not a fixed deposit scheme. It is the basic banking facility through which ordinary people carry out their daily financial transactions. Money received from different sources, including salaries, and money spent for daily expenses all move through savings accounts. An account that has a balance of Rs 10,000 or Rs 20,000 today may not even have Rs 1,000 in the coming weeks. However, some banks strictly insist that a minimum balance must be maintained in savings accounts within a fixed period. Following directions from the Union Finance Ministry, many public sector banks, including SBI, have stopped charging penalties for not maintaining a minimum balance. However, most private new-generation banks still continue to impose such penalties.

The Parliamentary Petitions Committee has now recommended that banks should stop charging penalties for not maintaining a minimum balance in savings accounts. In the financial year 2024–25, some public sector and private banks together collected Rs 4,817 crore as penalties from account holders for not maintaining the minimum balance. This shows how serious the issue is. It may be understandable if banks freeze or penalise accounts that have been inactive for years without any transactions. But insisting that Rs 5,000 or Rs 10,000 must remain in the account every few months may push ordinary people away from the banking system.

It was the Reserve Bank of India that allowed banks to charge penalties for not maintaining minimum balance in 2015. However, the Petitions Committee pointed out that while the central government is promoting schemes to bring more people into the banking system, it is not fair for some banks to continue collecting such penalties. The committee also observed that most of those who are penalised are poor people. Therefore, it has suggested that the Finance Ministry and the Reserve Bank should issue clear guidelines to stop this unfair practice. The committee made this recommendation after considering a complaint submitted in August 2024 to the Lok Sabha Speaker by Parameswaran Krishnayer, a native of Valiyasala in Thiruvananthapuram and an industrialist based in Bengaluru.

It is estimated that around 1.9 crore people in the country still do not have a bank account. Many of them live in the interior areas of North and Northeast India. However, the complaint that led to the committee’s recommendation mainly raised concerns about the difficulties faced by employees of the complainant’s company in Bengaluru in maintaining the required minimum balance. Not everyone who fails to maintain Rs 10,000 in their account for four or five months is poor. In reality, many middle-class people are also affected by the practices of new-generation private banks. It is expected that the Reserve Bank will soon issue guidelines to banks based on the committee’s recommendation.