Home / Money / Personal Finance /  What happens to bank accounts with negative balances?

Many borrowers, who are unable to repay their loans due to the financial crunch, have seen their savings account balances turn negative. Lenders have been regularly sending auto debit requests to bank accounts of borrowers who are in financial hardship and are unable to repay.

When requests bounce due to insufficient balances, banks levy a charge. It ranges from 250 to 500. Typically, the penalty is lower in public sector banks and higher in private sector banks. For many borrowers who are unable to repay their loans, such charges have been mounting and their balances have turned negative.

Due to negative balances, many borrowers have stopped using their bank accounts.

What happens to such accounts when the balance turns negative? “Based on our internal policies, we may close the account and write-off the amount," said Ravi Narayanan, president, head - branch banking, retail liabilities and products, Axis Bank, said in a recent media interaction.

Such accounts may not be termed as inactive or dormant after one year, like it usually happens. According to Reserve Bank of India’s (RBI) regulations, for an account to be termed inactive or dormant, there shouldn’t be any debt or credit transactions. If there is a mandate attached to such accounts, banks have to act based on their internal policies.

The regulator has asked banks to do an annual review of accounts in which there are no operations (no credit or debit other than crediting of periodic interest or debiting of service charges) for more than one year. “For the purpose of classifying an account as ‘inoperative’ both the type of transactions, that is, debit as well as credit transactions induced at the instance of customers as well as third party should be considered," states the regulations.


If there are no transactions in a bank account for 24 months, banks must treat them as inoperative or dormant. But banks term the account as inactive if there is no transaction for 12 months.

The difference is that a customer can operate an inactive savings bank account after 12 months just by informing the bank. Banks activate dormant accounts only after obtaining certified copies of officially valid documents for proof of identity and address from the customer.


If the customers want to close the account, there could be charges. Most banks also have account closing fees. There are no charges if the account is closed within a few days of opening it and after one year.

HDFC Bank, for example, doesn’t charge any fee if the customer closes the account within 14 days. If the account is closed between 15 days and six months, it charges 500, and 250 if it’s closed between six months and one year, according to its website.

Kotak Mahindra Bank doesn’t charge a fee of 600 only if the account is closed between 31 days and 181 days, as per its website. Axis charges 500 for accounts closed between 15 days and up to one year.

ICICI Bank doesn’t charge any fee if the closure is within 30 days or after one year. But if the account is closed between 31 days to one year, it has an account closure fee of 500.

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