Friday, Dec 19, 2014

Minimum balance: Better to maintain than risk high fees

By: ENS Economic Bureau | Posted: April 7, 2014 4:47 am

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 continued…

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