Parliament panel asks banks to scrap penalties on minimum balance rule

New Delhi: With public and private sector banks collecting Rs 4,817.96 crore as penalties in 2024-25 for not maintaining minimum balance in savings accounts, a Parliamentary committee has recommended that all banks stop collecting such fines and the RBI and Department of Financial Service may consider issuing necessary guidelines.

Instead of penalising customers for not maintaining minimum prescribed balance in their accounts, the Lok Sabha Petitions Committee said, banks may encourage higher balances through incentives such as reward points, fee waivers, and interest rate incentives for customers maintaining consistent deposits.

The recommendation came following a complaint filed by Parameswaran Krishna Iyer, who runs a company 'Bamboopecker' in Bengaluru, claiming that penalties levied by banks for non-maintenance of minimum balance are "often disproportionately high", causing undue financial stress on account holders, particularly those from economically weaker sections.

Iyer also said a customer maintaining a minimum balance is rewarded with only the savings bank interest rate, which is relatively low, but a penalty charged for not maintaining it 15 to 20 times the amount that the customer would receive as interest for maintaining the balance. This significant disparity between the interest earned and the penalty imposed is unjust and adds to the financial burden on the customer, the petition said.

Examining the complaint, the committee in its report tabled in Lok Sabha on Thursday referred to instances of a bank deducting Rs 440 of Rs 500 deposited as MGNREGA wages in the account of a woman labourer in Bihar and another bank deducting Rs 2,500 of Rs 5,000 deposited by a man in his son's account due to maintenance of minimum balance.

The RBI had allowed banks to collect penalties from account holders who were not maintaining minimum balance. According to statistics provided in the report, public sector banks had collected Rs 2,045.21 crore and 13 private banks garnered Rs 2,772.21 crore as penalties in this regard in 2024-25.

According to the 15-member multi-party committee headed by BJP MP Chandra Prakash Joshi, no direction or guideline on the subject has been issued by RBI though almost all public sector banks have decided to waive the minimum balance charges. It also said private sector banks are still charging this penalty.

After "carefully evaluating the fine balance between the autonomy given to banks and the interest of account holders, especially those belonging to the economically vulnerable sections of the society," the committee recommended that "all banks -- whether private or public sector -- should adopt a uniform policy" of not charging penalties for failure to maintain minimum balance in all regular savings accounts.

It also asked the DFS and the RBI to consider issuing necessary guidelines to all banks, including Cooperative Banks and Regional Rural Banks (RRBs).

While the SBI has waived penal charges across all types of savings accounts since March 2020, seven other PSU banks -- Bank of Baroda, Bank of India, Canara Bank, Central Bank of India, Indian Bank, Punjab National Bank, and Union Bank of India -- also withdrew waived charges for non-maintenance of minimum balance.

Authorities told the committee that the issue is under consideration of UCO Bank, Indian Overseas Bank, Bank of Maharashtra and Punjab & Sind Bank.