How banks make maximum profit from minimum balance accounts
January, 02nd 2018
The regulations of Reserve Bank of India (RBI) mandate that charges for non-maintenance of minimum balance in savings bank accounts be "reasonable and not out of line with the average cost of providing the services". But that's not what is actually happening.
Many banks earn huge profits out of penalising customers for not maintaining minimum balance.
Finance Ministry data shows the country's largest lender, State Bank of India, collected Rs 1,771 crore during April-November 2017 as charges from customers who did not maintain their minimum monthly average balance in their accounts, according to a report in The Indian Express. This is more than the bank's July-September quarter net profit of Rs 1,581.55 crore and nearly half of the Rs 3,586 crore it earned as net profit April-September.
The charges were re-introduced after a gap of five years during the current fiscal.
Punjab National Bank collected Rs 97.34 crore through the penalty during the April-November period while Central Bank of India collected Rs 68.67 crore and Canara Bank Rs 62.16 crore.
A recent study by an IIT-Mumbai professor of statistics had exposed this practice of banks, public as well as private. "With many banks charging at an average high rate of 78 per cent per annum of the shortfall amount, it makes the whole regulation of reasonableness of charges as per cost quite shallow," Ashish Das said in his study.
According to Das, the RBI has formulated the penal charges rule with an objective of bringing in fairness from the customers' angle. "Thus, it is time to plug the regulatory and supervisory gaps in a holistic manner and formulate clear guidelines on the formation of slabs and how to measure reasonableness of charges based on costs of funds," he said in his study.
"With many banks charging at an average high rate of 78 per cent per annum of the shortfall amount, it makes the whole regulation of reasonableness of charges as per cost quite shallow," Das said.
However, basic savings bank accounts and Pradhan Mantri Jan Dhan Yojana accounts have been exempted from levy of such charges.
After a gap of five years, SBI started charging penalty on non-maintenance of minimum balance in accounts from the current financial year. If you are an SBI customer, here's what you need to know:
How much minimum balance you should have? For metro cities, initially the minimum balance was Rs 5,000 but later in September brought down to Rs 3,000. In urban, semi-urban and rural areas, it is Rs 3,000, Rs 2,000 and Rs 1,000, respectively. The bank had exempted pensioners, beneficiaries of social benefits from the government and accounts of minors from levy of these charges with effect from October 1.
What if you don't have the stipulated balance? As per the list of revised charges of SBI, failure to minimum balance in accounts attracts a penalty of up to Rs 100 plus service tax. In metro cities, there is a charge of Rs 100 plus service tax, if the balance falls below 75 per cent of the minimum balance. If the shortfall is 50 per cent or less, then the bank charges Rs 50 plus service tax. For rural areas, the penalty ranges from Rs 20-50 plus service tax.