A Rule from a Different Time
Minimum Average Balance (MAB) requirements were created for a simple reason: to ensure banks had a stable, low-cost pool of funds to lend out. In the age of physical banking, this made sense. It was a trade-off; customers got safekeeping for their money,
and banks got the capital they needed. But today’s banking landscape has been completely reshaped. The Unified Payments Interface (UPI) has revolutionised how Indians transact, turning the financial system into a high-volume, real-time network. Since its launch in 2016, UPI has made sending and receiving money, even tiny amounts, effortless and instant. This digital transformation means that money is constantly moving, not just sitting idle. The old logic of maintaining a static balance is increasingly at odds with the dynamic flow of money in 2026.
The New-Age Customer Profile
Consider the financial life of a young professional, a gig-economy worker, or even a small vendor. Income may not arrive in a single monthly salary deposit. It could be a series of small payments from different clients or customers throughout the month. Many people now use multiple bank accounts for different purposes—one for salary, one for investments, and a third for daily UPI spending. This third account, the one used for frequent digital transactions, is often the one that falls foul of MAB rules. It’s designed for high activity, not for holding a large balance. Penalising a customer for using their account exactly as intended for the digital ecosystem seems counterintuitive. It punishes them for being financially active and digitally savvy, the very behaviour that initiatives like Digital India were designed to encourage.
The Cost of Penalties
The penalties themselves are not insignificant. According to government data shared in Parliament, banks collected over ₹7,086 crore from these charges in the 2026 financial year alone. While the Reserve Bank of India (RBI) mandates that these charges must be reasonable and transparent, they still represent a drain on consumer finances. The rules vary significantly. Many public sector banks, including the State Bank of India, have commendably waived these penalties on their savings accounts. However, several major private sector banks continue to enforce them, with MAB requirements in urban areas often set at ₹10,000 or more. The penalty is often calculated as a percentage of the shortfall, disproportionately affecting those with the least financial buffer.
A Path to Modern Banking
The solution isn't necessarily to abolish all account fees but to align them with modern behaviour. Banks could rethink what constitutes a 'valuable' customer. Is it someone who parks ₹10,000 in an account, or someone who performs hundreds of digital transactions a month, generating valuable data and contributing to the digital economy? An alternative could be to tie account requirements to activity levels rather than static balances. For instance, a certain number of UPI transactions per month could waive any fee. Furthermore, promoting genuinely accessible zero-balance accounts is crucial. While Basic Savings Bank Deposit Accounts (BSBDA) exist, they are not always the default option offered to customers. Banks, especially digital-first ones, are already experimenting with models that offer zero-balance facilities, recognising that customer engagement is the new currency.
