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HT Photo

De-jargoned: The penalty for not maintaining average monthly balance

Most banks impose a penalty on their customers for not maintaining the stipulated amount of minimum balance in their savings accounts. The State Bank of India has announced it is reducing the quantum of this penalty

If you have been upset about the charges imposed by public-sector banks for various reasons including non-maintenance of minimum balance, there is some relief. The country’s largest lender State Bank of India (SBI) has announced reduction of these charges from 1 April 2018. However, the minimum amount to be maintained in the account remains the same. With SBI taking this step, it can be expected that other banks would follow too.

Like other banks, SBI imposes penalties on non-maintenance of average monthly balance (AMB) in most savings account. In metro cities, the minimum balance you need to maintain is Rs3,000; it is Rs2,000 in semi-urban branches; and Rs1,000 in rural branches. The Jan Dhan Yojana accounts and Basic Savings Bank Deposit Accounts, also called no-frills accounts, are exempt from minimum balance requirements. Many banks also exempt salary accounts from this requirement.

Currently, SBI imposes a charge between Rs30 and Rs50, plus GST, on accounts in metro and urban branches if AMB is not maintained. These charges are between Rs20 and Rs40 in semi-urban and rural branches. The amount of penalty is decided on the amount that falls short of AMB requirements for the particular category of account.

AMB is calculated by taking into account the balance maintained in an account on all the days of the month. Take for instance an account in a metro city in a 31-day month. If it had Rs5,000 for 10 days, Rs3,000 for 10 days, and Rs2,000 for 11 days; the average monthly balance would be: [(5,000x10)+(3,000x10)+(2,000x11)]/31 = Rs3,290. So, no penalty would be imposed in this case. If the balance in last 11 days was Rs1,000, the AMB would have been Rs2,935 and Rs30 (plus taxes) would be charged for that month, as the shortfall was less than 50% of the AMB requirement. If the shortfall is between 50% and 75% of the AMB needed, the charge would be Rs40 and if the shortfall is over 75%, it is Rs50. This is as per the existing SBI rules that are current till 31 March 2018. From 1 April 2018, in the above example, Rs10 would charged for a shortfall of less than 50%. The charges will be between Rs10 and Rs15 for metro and urban branches; Rs7.5 and Rs12 for semi-urban and Rs5 and Rs10 for accounts in rural branches.

Though the penalty has been reduced, you should remember that the amount of AMB required would remain the same. SBI had brought back this requirement for its savings accounts in April 2017, after a gap of 6 years.

Between April 2017 and November 2017, SBI had collected Rs1,771.67 crore from customers on account of non-maintenance of AMB, according to a response that the Ministry of Finance gave in Lok Sabha in February 2018 (read it here).

While levying of charges by public sector banks, for not maintaining minimum balances, has been in the news; it is still very low in comparison to that imposed by private sector banks. Their AMB requirements are also much higher. For instance, HDFC Bank Ltd has an AMB requirement of Rs10,000 for regular savings accounts in metro and urban centres, and Rs5,000 in semi-urban branches. The AMB charges are Rs150—600 and Rs150–Rs300, respectively.

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