In the quiet arithmetic of banking, small shortfalls can swell into costly lessons.
A Costly Slip Below Minimum
Indian banks collected ₹4,818 crores in penalties during FY2024-25 from customers who failed to maintain the mandated minimum average balance (MAB) in savings and current accounts, according to a parliamentary report tabled in the Lok Sabha. The fourth report of the Committee on Petitions, chaired by BJP MP Chandra Prakash Joshi, flagged how minimum balance rules have evolved into a consistent revenue stream.
“The penalties levied on non-maintenance of minimum balance are often disproportionately high, causing undue financial stress on account holders, particularly those from economically weaker sections,” the committee said.
Savings account holders typically earn interest between 2.5% and 4% annually, with some banks offering 6–7%. However, the report noted that penalties for shortfalls can be 15 to 20 times the interest a customer might have earned by maintaining the required balance. For low-income earners with fluctuating deposits, the burden becomes particularly acute.
Public sector banks collected ₹2,045.7 crores in FY2024-25, an 8% decline from the previous year. Private banks accounted for a larger ₹2,772.2 crores. Among them, HDFC Bank contributed nearly 40% of private bank collections, followed by Axis Bank at 25% and ICICI Bank at 8.4%. Over five years, banks amassed ₹28,495 crores from such penalties.
Regulatory Backing, Reform Suggestions
The Department of Financial Services (DFS) told the panel that the Reserve Bank of India permits penal charges under board-approved policies, referencing circulars issued in 2014 and 2015. Customers can opt for zero-balance Basic Savings Bank Deposit accounts under Pradhan Mantri Jan Dhan Yojana, which do not attract penalties.
“Banks impose a penalty on non-maintenance of minimum balance in accounts to cover their operational costs, overhead costs, cost of customer services etc,” the DFS said.
While the RBI’s Department of Supervision monitors compliance, the committee recommended reforms. It suggested treating balance shortfalls as temporary loans with reasonable interest, capping lifetime penalties to the prescribed minimum balance, or blocking the minimum amount instead of levying recurring charges.
Between inclusion and income, the balance banks must strike is more than just numerical.
Summary
Indian banks earned ₹4,818 crores in FY2024-25 from minimum balance penalties, with private lenders contributing the majority. A parliamentary panel flagged the disproportionate burden on low-income customers and suggested fairer alternatives, including capping charges or treating shortfalls as loans. The RBI permits such penalties under approved policies, while zero-balance Jan Dhan accounts remain exempt.
