New Delhi: Indian banks earned a whopping Rs 4,818 crore in penalties and charges from customers who failed to maintain the required minimum average balance (MAB) in their savings and current accounts during FY 2024-25, according to a parliamentary report tabled in Lok Sabha on Thursday.
The figure, mentioned in the fourth report of the Committee on Petitions chaired by BJP MP Chandra Prakash Joshi, underlines how the minimum balance rules—often buried in account opening forms—have become a steady revenue stream for banks, even as the government continues to push for financial inclusion.
“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.
According to the report, if customers maintain the required balance, they typically earn savings account interest ranging from 2.5 percent to 4 percent per annum. Some banks offer slightly higher rates of 6 percent to 7 percent.
However, if the balance falls short, the penalty charged can be 15 to 20 times the amount that a customer would have earned as interest for maintaining the balance, the report said.
In other words, while the incentive for compliance is marginal, the cost of non-compliance can be disproportionately high—especially for low-income customers whose account balances fluctuate with irregular wages.
The report shows that public sector banks collected Rs 2,045.7 crore in minimum balance charges in FY2024-25—an eight percent decline from the previous year. But the bigger share came from private banks, which together earned around Rs 2,772.2 crore during the same period.
‘Penalties are often disproportionately high, causing undue financial stress on account holders, particularly those from economically weaker sections,’ says LS committee.
Among them, HDFC Bank alone accounted for nearly 40 percent of the total private bank collections. It was followed by Axis Bank at 25 percent, and ICICI Bank with 8.4 percent.
“All banks collectively have amassed a staggering Rs.28,495 crore in the past five years from penalties imposed on customers who were unable to maintain the minimum balance,” the committee report stated.
The Department of Financial Services (DFS), under the finance ministry in its reply to the committee said, the Reserve Bank of India (RBI), through its circulars issued in 2014 and 2015, has permitted banks to levy penal charges for non-maintenance of minimum balances, but only under board-approved policies.
It also said that customers can alternatively open Basic Savings Bank Deposit (BSBD) accounts under Pradhan Mantri Jan Dhan Yojana (PMJDY) that are zero-balance accounts and do not attract any penalties.
However, the DFS acknowledged that other savings and current accounts are subject to minimum balance rules and penalties by banks “as per their Board Approved Policy”. It also stated that account holders are informed through “SMSs, emails, letters etc.” about charges being levied.
“Banks impose a penalty on non-maintenance of minimum balance in accounts to cover their operational costs, overhead costs, cost of customer services etc,” said the Department of Financial Services in its reply to the committee in the report.
While banks are free to design slab-based penalty structures depending on geography, customer segment and the amount of shortfall, the RBI’s Department of Supervision keeps a watch to ensure that these charges remain within regulatory norms, the DFS reply stated.
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Committee recommendations
The parliamentary committee has suggested that banks should move away from punitive minimum balance penalties and adopt fairer alternatives.
It proposed that instead of imposing heavy charges, banks could treat the shortfall as a loan and recover only a reasonable interest amount for the period the balance is not maintained.
The panel also recommended capping penalties over an account’s lifetime, stating that the total charges should not exceed the prescribed minimum balance amount—for instance, not more than Rs 10,000 if the minimum balance requirement is Rs 10,000.
Another option suggested by the committee for the banks is to block the minimum balance amount from further withdrawal instead of levying punitive charges.
(Edited by Ajeet Tiwari)
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