A Tale of Two Banking Sectors
The details, revealed in Parliament, paint a picture of a widening gap between public and private sector banks. In the 2025-26 financial year, private banks accounted for nearly 70% of all minimum balance penalties, collecting a whopping ₹4,949 crore.
This is more than double the ₹2,138 crore collected by all twelve public sector banks (PSBs) combined. In fact, HDFC Bank alone collected ₹1,798 crore, which was followed by Axis Bank at ₹1,081 crore. This divergence is largely because most PSBs have responded to public and governmental pressure by eliminating these charges on savings accounts. Ten out of twelve PSBs have now discontinued the practice for regular savings accounts, a significant shift in policy. In contrast, collections by private banks have been rising, jumping 18% in the last year alone.
The Minimum Balance Burden
The primary rule under fire is the requirement to maintain a Minimum Average Balance (MAB). This is the average amount a customer must keep in their account over a month. If the balance drops below this threshold, the bank levies a penalty. While banks argue these charges are necessary to cover the costs of providing services, critics contend they are punitive and disproportionately affect lower-income individuals and those with irregular cash flow. The penalty amounts can vary, but often depend on the extent of the shortfall. For instance, a balance dropping below 50% of the required amount could attract a penalty of several hundred rupees plus GST. The Reserve Bank of India (RBI) allows banks to set their own policies on these charges, provided they are 'reasonable' and 'transparent'. However, the sheer scale of the collections has led many to question whether the current framework is truly protecting consumer interests.
Beyond the Minimum Balance
While non-maintenance of MAB is the biggest contributor to penalties, it is part of a wider ecosystem of service charges that chip away at savings. Customers also frequently face fees for ATM transactions beyond a certain limit, SMS alerts, debit card issuance, and charges for failed transactions due to insufficient funds. For example, a single failed ECS debit or an unsuccessful ATM withdrawal attempt can result in a penalty, further depleting an already low account balance and making it even harder for the customer to meet the MAB requirement. This can create a cycle of penalties that is difficult for many to escape, turning basic banking services into a costly affair.
Financial Inclusion vs. Profitability
This debate is happening against the backdrop of India's massive financial inclusion drive. Initiatives like the Pradhan Mantri Jan Dhan Yojana (PMJDY) have successfully brought crores of people into the formal banking system through Basic Savings Bank Deposit Accounts (BSBDAs). These zero-balance accounts, numbering around 73 crore, are exempt from minimum balance penalties, providing a crucial safety net. Yet, the high penalties on other savings accounts create a contradiction. On one hand, the government is pushing for universal banking access; on the other, the policies of some banks seem to penalise customers who are financially vulnerable but may not qualify for or use a BSBD account. This raises a fundamental question: Should maintaining a bank account be a service that everyone can afford, or is it a product where profitability can trump accessibility?
