Public Sector Banks Collected ₹8,936 Crore in Penalties for Minimum Balance Violations
A recent report has brought to light a significant finding: 11 public sector banks (PSBs) in India have collectively collected a staggering ₹8,936 crore from customers as penalties for not maintaining a minimum balance in their savings accounts. This data, shared by the Ministry of Finance in Parliament, covers a five-year period and has sparked a debate on the banking sector’s policies and their impact on common customers.
In the last 5 years, 11 public sector banks have collected ₹8,936 crore penalty from customers for not maintaining minimum balance
◆ Indian Bank collected the highest penalty of ₹1,828 crore, PNB collected ₹1,662 crore
◆ Jan Dhan and salary accounts are exempted, but many private banks are still collecting
The Details of the Collection
The penalty amount was collected between the financial years 2020-21 and 2024-25. The data reveals that the collection was not uniform across the years, but showed a general upward trend before a slight dip in the last year of the period. The top three banks in terms of penalty collection were Indian Bank, Punjab National Bank, and Bank of Baroda. Indian Bank alone collected over ₹1,800 crore, followed by PNB with more than ₹1,600 crore and Bank of Baroda with over ₹1,500 crore.
The Context and Regulatory Framework
The Reserve Bank of India (RBI) allows banks to set their own minimum balance requirements and penal charges, provided they are reasonable and transparent. The RBI has, however, advised banks to be sensitive to the needs of customers, especially those in rural and semi-urban areas. It has also mandated that banks should not let an account go into a negative balance solely due to these penalties.
Despite these guidelines, the substantial amount collected has raised concerns about the fairness of these charges, particularly for low-income account holders who are often the most affected. Critics argue that these penalties disproportionately impact vulnerable populations, sometimes even consuming government welfare payments deposited into their accounts.
A Shift in Policy?
In a notable development, several public sector banks have recently announced the removal of minimum balance penalties. State Bank of India (SBI) had already done so in March 2020. More recently, banks like Canara Bank, Bank of Baroda, Punjab National Bank, Indian Bank, Bank of India, and Central Bank of India have joined suit, waiving these charges. This shift in policy by a number of major PSBs could signal a broader move towards more customer-friendly and accessible banking services.
The Ministry of Finance has also advised banks to review and rationalize their penal charges, with a special focus on providing relief to customers in semi-urban and rural regions. This move comes at a time when PSBs are also facing pressure on their low-cost Current Account and Savings Account (CASA) deposits, which are a crucial source of funds for banks.
Looking Ahead
While the collection of billions of rupees in penalties over the past five years highlights a significant revenue stream for banks, the recent policy changes by several PSBs suggest a growing recognition of the need for customer-centric banking. The move towards waiving these charges is expected to benefit millions of account holders, making banking more inclusive and accessible, particularly for those who have been most burdened by these penalties.