The RBI has washed its hands off the five-fold increase in the average monthly minimum balance requirement that ICICI Bank has introduced on new non-salary accounts -- ranging from Rs 10,000 in rural branches to a high Rs 50,000 in metro branches from this month -- saying the subject is not within the regulatory purview of the central bank.
Addressing a financial inclusion event in rural Gujarat on Monday, governor Sanjay Malhotra told reporters, “The RBI has left it to banks to charge or not to charge a penalty on not having minimum balance in a savings account, and so this doesn't fall under any regulatory domain."
He said, "The RBI has left it to banks to decide on the minimum balance. Every bank has its own minimum balance requirement (MAB, which is the simple average of day-end balances for a calendar month).”
The governor added, "Some banks have kept it at Rs 10,000, some have it at Rs 2,000 and some have even waived it off. This is not in the RBI's regulatory domain."
The topic came up after the second largest private sector lender ICICI Bank steeply hiked the MAB for new non-salary savings accounts opened this month. While the new requirement is up five times to Rs 50,000 from Rs 10,000 for metro customers, it is now Rs 25,000 for semi-urban branches, up from Rs 5000, and Rs 10,000 for rural branches, up from Rs 2,500. The bank also said it will impose a penal charge of 6% of the deficit amount or Rs 500, whichever is lower, from account holders who did not meet this requirement.
Others like HDFC Bank, Axis Bank, Kotak Bank all have Rs 10,000 as MAB in the metros and much lower amount in rural and semi urban branches, while SBI, Bank of India, Union Bank, Bank of Baroda and other state-run banks have no MAB requirements at all.
Significantly, the charges are imposed without effectively giving anything in return to the customer barring a free IMPS transactions and a free cheque book—who writes a cheque these days is something that will be interesting to find out though. Also, what it offers in annual interest is as low as 2.5%, which even SBI and most other state-run banks give without a MAB requirement.
The ICICI Bank action comes at a time when banks are finding it difficult to attract money in bank accounts which is clear from their falling Casa shares—from close to 50% to 30% or thereabout for most banks.
While the industry leader SBI’s Casa (current account and savings account) share stood flat at 39.36% in the June quarter, for the second largest player HDFC Bank it was a low 33.9%, down from 36.3%, and for ICICI Bank it was again a low 38.70%, down from 39.60%.
So how ICICI Bank will be able to get account holders is something to watch out for.
However, it has to be admitted that banks, big or small, incur a reasonably high cost on maintaining an account, which varies from large metros to rural branches. Such cost is a blended mix of rentals and other overhead costs which are the highest in the large cities like Mumbai or Delhi, (which varies even from one business district/colony to another within the same city as rentals vary from place to place) and will be lower in rural setting.
So getting an average cost of maintaining a savings account is difficult yet bankers say it could be around Rs 400/account per annum.
The other factors influencing the cost for banks include customer location, account type and services offered/utilised (eg. unlimited transactions, premium cards, waiver of charges etc); transaction volume and mode among others.
When it comes to penal charges on MAB; HDFC Bank’s charges range from Rs 300 to Rs 600 in urban and metro areas, based on the extent of shortfall in the minimum balance, while for Axis Bank the penalty varies from Rs 600 to Rs 50, depending on the extent of the shortfall; for Federal Bank this is flat Rs 155; Kotak Bank this is flat 6% of the average shortfall and for IDFC First Bank this is 6% of the shortfall or Rs 500 and when it comes to the state-run Punjab National Bank, which is one of very few public sector banks to have a MAB requirement the penal charges range from Rs 25 to Rs 250 depending on location, category, and quarterly average balance deficit.
It may be noted that the nation’s largest lender removed the MAB requirement way back in 2020.
The move drew flak on social media. “Majority of us earn below Rs 25,000 monthly. So ICICI Bank wants them to keep two months’ salary as minimum balance in their account,” wrote an X user. Another user wrote on X, “every bank should have a basic savings account without any requirement of balance.”
Another person said, "Rs 50,000 is two-three months’ income for millions of us. In rural India, Rs 10,000 is the difference between survival and debt. The role of banks should be financial inclusion, helping more people access the system, build savings, and grow wealth. ICICI Bank is doing the exact opposite: shutting the door on those who need it most.”
Many other have criticised the hike as discriminatory, with social media users calling it elitist and urging the RBI to intervene. One user even went to the extent of calling it looting public money while some users even threatened to close their ICICI accounts in favour of other banks with less stringent policies and accuse the bank of prioritising wealthy customers.
A user wrote, “In a country where 23 crore people live below the poverty line, ICICI thinks Rs 50,000 is the minimum masterstroke!”
“I think the bank’s bad times have started now. This is a kind of cheating. The government banks are eliminating the minimum balance penalty while the private sector is increasing it.”