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₹8,936 Crore Collected by PSBs For Minimum Balance Penalties Triggers Concern
Public sector banks collected nearly ₹9,000 crore in minimum balance penalties in five years. Public voices question the fairness of such charges on account holders.
Author: Neha Bodke
Published: 9 hours ago
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Eleven Public Sector Banks (PSBs) have collected ₹8,936 crore over the past five financial years from savings account holders as penalties for not maintaining the prescribed minimum average monthly balance (AMB), according to data tabled in the Rajya Sabha by the Ministry of Finance.
The data, compiled from FY 2020–21 to FY 2024–25, shows that Indian Bank recorded the highest collection in this category at ₹1,828 crore, followed by Punjab National Bank with ₹1,662 crore and Bank of Baroda with ₹1,532 crore. Other major collectors include Canara Bank (₹1,213 crore), Bank of India (₹810 crore), and Bank of Maharashtra (₹535 crore).
Year-Wise Trend
The figures indicate that penalty collections have fluctuated over the years. In FY 2020–21, Indian Bank alone collected ₹342.86 crore, while Canara Bank collected ₹177.38 crore and Punjab National Bank ₹141.03 crore.
In FY 2023–24, collections surged for certain banks. Punjab National Bank collected ₹633.40 crore in that year, while Indian Bank reached ₹369.16 crore.
By FY 2024–25, Indian Bank again recorded the highest at ₹503 crore, followed by Bank of Baroda (₹386.16 crore) and Canara Bank (₹294.91 crore).
State Bank of India’s Policy
The State Bank of India (SBI) has not charged AMB penalties since March 2020. As per the Finance Ministry’s note, from the second quarter of FY 2025–26, Canara Bank, Bank of Baroda, Punjab National Bank, Indian Bank, Bank of India, Central Bank of India, and Union Bank of India will also stop levying such charges.
Why These Charges Exist
The Reserve Bank of India allows banks to levy charges for non-maintenance of minimum balances in savings accounts as per their board-approved policies. The Ministry of Finance has stated that the Department of Financial Services (DFS) has advised banks to examine rationalisation of these charges, especially to ease the burden on rural and semi-urban customers.
Certain categories of accounts, such as the Basic Savings Bank Deposit Account (BSBDA) and salary accounts, are exempt from maintaining a minimum balance.
Service Charges Beyond AMB Penalties
Apart from AMB penalties, banks also levy fees for various services such as annual processing charges on working capital limits, inspection charges for CC/OD accounts, fees for account statements, SMS alerts, cheque books, and other value-added services.
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Source: BusinessLine
Public Concerns and Reactions
Some stakeholders have expressed concerns that these charges shift the financial burden onto small depositors.
Devidas Tuljapurkar, Joint Secretary of All India Bank Employees Association (AIBEA) raising concerns about this, shared with Kanal, “Banking today has become a public utility service. Banking should be the fundamental right of all citizens. Saving depositors are making available funds at a cheaper rate of interest which banks are lending to corporates, many of whom later default. These defaults are written off or recovered with haircuts, and to overcome such losses, banks are levying charges. The burden of defaulters is being shifted to depositors. How far is it justifiable?”
Echoing similar concerns about the fairness of such penalties, Ashok Kumar Jain, associated with Transparency International India, took a more categorical stance on minimum balance charges, "No, not at all. There is no justification for deduction of any amount for non-maintenance of minimum balance/AMB."
Debate Over Lending Practices
While these charges form a significant non-interest income source for banks, lending patterns have also drawn attention. In recent years, some PSBs have increasingly extended credit to Non-Banking Financial Companies (NBFCs) at lower interest rates rather than directly to small enterprises or individual borrowers. This shift has prompted discussions on whether the traditional mandate of public sector banking, prioritising direct, inclusive credit is being diluted.
Policy Direction Ahead
With several PSBs set to waive AMB penalties from late FY 2025–26, the overall burden on account holders is expected to reduce. However, the Ministry of Finance has emphasised that rationalisation of service charges and a review of lending approaches remain important to align with the public service objectives of PSBs.
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