Twenty-eight-year-old Nabnita Sen, a BPO employee in Bangalore, was shocked when ICICI Bank asked her to cough up `8,400 when she decided to close her savings bank (SB) account with it. Sen used the account only to pay her car loan EMIs. When the loan came to an end, she decided to terminate the account. “That’s when I was asked to pay a penalty for non-maintenance of minimum balance for the past two years. I was completely unaware that I needed to. I used to just transfer the EMI amount from my salary account in HDFC to the ICICI account before the due date. As there were no funds in the account the rest of the time, the bank decided to impose penalty,” she says.
The truth is that the bank had sent Sen plenty of mails and reminders about her inactive account and the piling up of penalties thereof. But since Sen, like a lot of other customers, had not updated her address and mobile number with ICICI, she did not get any of them.
“A lot of customers are unaware of the penalties and end up paying more. One should read the bank statement from time to time to see if there are any deductions from the balance available in the account,” explains Arun Ramamurthy, former banker and director, Credit Sudhaar, a credit analytics and research firm.
The situation may change, with the RBI asking banks not to levy penal charges as a consumer protection initiative in its first bi-monthly policy meet on April 1. “Instead of levying penal charges for non-maintenance of minimum balance in ordinary savings bank accounts, banks should limit services available on such accounts to those available to basic savings bank deposit accounts and restore the services when the balances improve to the minimum required level,” said Raghuram Rajan, governor, RBI. Banks should also not levy penal charges if the minimum balance is not kept in any inoperative account, he said.
As per RBI data, there were over 624 million SB accounts in 2011. “A SB account is one of the basic and key components of the Indian banking industry and the government is trying to ensure that all Indians have a bank account. A large number of SB accounts implies efficient savings, which in turn means a robust financial system,” says B K Batra, deputy managing director, IDBI Bank.
Almost all private and foreign banks, such as Axis Bank, HDFC Bank, ICICI Bank and CitiBank, charge customers for non-maintenance of minimum balance while public sector banks such as State Bank of India (SBI) and Punjab National Bank (PNB) do not impose any penalty for accounts without cheque books. (Typically, a higher minimum balance is stipulated in cheque-operated accounts vis-à-vis non-cheque operated accounts.
“We do not impose any penalty for a no-frills account or a basic SB account. But if the customer opts for services like cheque-books or overdraft facility and doesn’t maintain the minimum balance, then there will be a penalty,” explains Ashwin Mehta, general manager, SBI. These penalties vary from bank to bank. While SBI levies a quarterly non-maintenance charge of `204 in urban locations and `102 in rural areas, private banks charge between `250 and `500 every month.
Not all are convinced about the new RBI directive. “Consumers will end up paying more. It is implied that if you don’t charge for the non-maintenance of a minimum balance, you are authorised to charge for other transactions like ATM transactions, account balance and statements,” says Aditya Puri, MD, HDFC Bank. Adds M Narendra, CMD, Indian Overseas Bank: “For a regular SB account, we do insist on minimum balance, but there are limitations to the number of services we can offer at zero cost.”
At the moment, services like cheque book, internet banking, TDS certificate, phone and net banking come at zero cost for accounts that maintain a minimum balance. A bank statement is free, for instance, for those who maintain a minimum balance. But if you don’t, you should be prepared to pay `100-150 every time you need a statement, warn the bankers.
According to Batra of IDBI Bank, banks may not be willing to do away with the penalty altogether. “Instead, charges could be based on the combination of services used by the customers. The higher the balance, the more services he will get at zero cost.”
Currently, banks pay 4 per cent interest per annum on SB accounts. The amount of interest is calculated for each calender month on the lowest balance in the credit of any account between the close of the 10th day and the last day of each month. Interest is paid every six months to customers. Banks take a nominal part of the interest on minimum balance, which is then used to maintain and service the account. “With this fee-based income gone, banks will be compelled to charge customers on services, which will again vary from bank to bank,” says Narendra.