Holding multiple bank accounts is a common practice especially in urban centres. However, one probably ignores the fact that with each new bank account with a private bank, comes an additional requirement to maintain an average daily balance of Rs 10,000 on a monthly or quarterly basis.
So if you have accounts with three banks, then you will need to allocate an aggregate of Rs 30,000 at all times for the sole purpose of adhering to your bank’s requirement of maintaining a minimum balance and avoid a penalty. While all try to comply with this requirement; it does happen during times of need that one unconsciously dips into that money that one thinks is lying idle. Often, we do not realise that it is the absolute minimum that should lie in the account and if it dips below the requirement, there is a penalty to be paid.
Last week, while announcing its first bi-monthly monetary policy, the Reserve Bank of India brought some relief to such individuals who find it tough to maintain the average minimum balance in their accounts when it advised the banks not to levy penalty on customers for not maintaining a minimum balance in their regular savings bank account.
“Banks should also not take undue advantage of customer difficulty or inattention. 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,” said RBI Governor Raghuram Rajan in his policy statement on Tuesday.
The quantum of charges
The average quarterly balance requirement and the charges levied by banks depend on your bank. If you are banking with a foreign bank, your average monthly or quarterly balance requirement will stand at a minimum of Rs 25,000, while with an Indian private bank (ICICI, HDFC and Kotak Mahindra Bank) it is Rs 10,000 for urban areas and Rs 5,000 for rural. For the public sector banks, that requirement comes further down to Rs 1,000 in urban locations and Rs 500 for rural branches.
Charges too vary from bank to bank. Citibank levies a charge of Rs 500 if the monthly relationship value goes down below its requirement of Rs 2 lakh, it stands between Rs 250 and Rs 350 every month for private sector banks. State Bank of India levies a quarterly non-maintenance charge of Rs 204 for urban segment and Rs 102 for rural.
THE RBI ADVISORY
The central bank’s move comes over three years after a committee set up by RBI, “Committee on Customer Service in Banks” under the chairmanship of M Damodaran submitted its report in 2010 where among other things it called for a check into imposition of penalty by banks for not maintaining the minimum balance.
“Banks should inform the customer immediately on the balance in the account breaching minimum balance and the applicable penal charges for not maintaining the balance by SMS/e-mail/letter,” the committee argued in the report adding that the penal charges levied were not in proportion to the shortfall observed.
In line with the committee’s recommendation, RBI last week told banks not to levy charges on its customers for not maintaining the minimum balance and also advised them not to levy penal charges for non-maintenance of minimum balances even in inoperative accounts.
It, however, told the banks that in case the customers do not maintain the minimum balance they can alternatively go ahead and limit the services in line with what is available to basic savings bank account as against that available to a regular savings bank account.
If that happens, all cheque books after your first one will become chargeable and even cash withdrawal at branches beyond a certain number of transactions will become chargeable. There are other benefits that the banks may withdraw.
MAINTAIN THE BALANCE
While RBI may have asked the banks not to levy any such charge, customers should try to maintain the mandated minimum balance. Bankers say that by not keeping the minimum balance in their regular savings accounts the customers may end up paying more— services available to a customer including account statement, several ATM transactions, cheque books issuance and number of withdrawals may become chargeable.
Aditya Puri, MD, HDFC Bank said, “The consumer will end up paying more in the alternative. Let us say minimum balance is Rs 10,000 and we earn 4 per cent on it. For Rs 400, we give you cheque books for the full year, ATM transactions, we give you the account balance and the statements. Break-even for the bank to provide those services is Rs 30,000. If you have consumer interest in mind, you will not push this because the alternative is then you are charged for these services. If I start charging you for these services, you will end up paying more. It is implied that if you don’t charge on non-maintenance of minimum balance, you are authorised to charge on the transaction,” he said.
So as banks suggest, the charges that you may have to pay for the bank’s services may be more than the penalty and hence it may be useful to still maintain the minimum balance requirement in the account and not become a habitual offender. Not to forget that your saving’s bank account earns you an interest of 4 per cent per annum and some banks are offering even a higher rate of interest.