Many government banks are now planning to remove the minimum balance rule for savings accounts.
This was discussed in a meeting with the Finance Ministry because the share of ‘Current and Savings Accounts’ (CASA) in total bank deposits is going down.
Canara Bank, Bank of Baroda, Punjab National Bank, and Indian Bank have already ended this rule.
Now, customers won’t have to pay a penalty for not keeping the minimum balance in their accounts.
Finance Ministry asked tough questions
In a recent meeting, the Finance Ministry questioned the banks, asking, “Why are customers being fined for not maintaining a minimum balance?” as reported by the Times of India.
The main concern is the decreasing share of CASA deposits. According to the RBI’s ‘Financial Stability Report,’ high-interest term deposits are increasing, while low-cost CASA deposits are dropping.
Bankers explained that although Jan Dhan accounts had low balances earlier, they now hold more funds. This change encouraged banks to review their policies.
SBI removed this rule in 2020
The State Bank of India (SBI) was the first to scrap the minimum balance rule back in 2020.
This came after an RTI showed the bank earned more from penalties than its actual profit! Earlier, public sector banks had lower minimum balance requirements compared to private banks.
Also, Jan Dhan accounts were already exempted from this rule. Some private banks also don’t apply this rule to salary accounts or accounts that hold other investments like FDs.
Focus shifting from penalties to service charges
Earlier, banks managed free services by earning from low-interest savings deposits (cross-subsidy). But with digital banking reducing costs, banks are now using other ways to cover service expenses:
Fees on debit cards
Charges after a certain number of free transactions
Extra charges for premium services
What does this mean for customers?
Now, people can save small amounts without worrying about penalties.
This move will help especially those in rural areas and people with lower incomes. Banks believe this change will boost CASA deposits and increase customer trust.
