RBI clarifies banks' freedom to set minimum balance for savings accounts.

The RBI Governor has clarified that banks have the freedom to set their own minimum average balance requirements for savings accounts. ICICI Bank has raised the requirement to Rs 50,000 for new customers in urban and metro areas, while state-owned banks such as SBI, PNB, and BOB have waived penalties for non-maintenance of minimum balance to promote financial inclusion.

The Reserve Bank of India (RBI) has clarified that individual banks have the autonomy to decide on the minimum average balance (MAB) requirements for savings accounts. This decision, announced by RBI Governor Sanjay Malhotra at a financial inclusion event in Gujarat on Monday, indicates that banks can now independently set their own MAB thresholds [1].

ICICI Bank has recently raised the MAB requirement for new customers in urban and metro areas to Rs 50,000, effective August 1. Customers who fail to maintain this balance will incur a penalty of 6% of the shortfall or Rs 500, whichever is lower [2]. This move comes at a time when several state-owned banks are moving in the opposite direction, eliminating penalties for not maintaining a minimum balance in an effort to promote financial inclusion.

State Bank of India (SBI) was the first to eliminate penalties for non-maintenance of minimum balance, followed by Punjab National Bank (PNB), Canara Bank, and Indian Bank, who have also waived penalties on savings account minimum balance requirements [1]. These public sector banks aim to enhance financial inclusion by reducing the barriers to accessing banking services.

In contrast, most private sector banks continue to levy charges for failing to maintain the required minimum average balance. However, many banks have also reduced interest rates on savings deposits in recent months, aiming to protect their margins amid changing market dynamics [1].

The decision to allow banks to set their own MAB requirements has drawn attention from civil society organizations. 'Bank Bachao Desh Bachao Manch' has written to the Finance Ministry, requesting intervention into ICICI Bank's decision to raise the MAB requirement for new savings accounts, citing concerns about inclusive banking and growth [4]. The organization argues that such a move is detrimental to the government's vision of broader financial inclusion.

The increased MAB by ICICI Bank will be applicable for new accounts opened on or after August 1, 2025. Existing customers will continue to maintain the old level of MAB as of now [3]. Account holders with higher MAB will enjoy certain benefits, such as free NEFT fund transfers and complimentary cash transactions [3].

The RBI's clarification on MAB requirements underscores the evolving landscape of banking regulations in India, emphasizing the importance of financial inclusion and customer-centric policies. As banks continue to adapt to changing market conditions, the balance between customer convenience and financial sustainability remains a key consideration.

References:
[1] https://m.economictimes.com/industry/banking/finance/banking/banks-free-to-set-minimum-balance-says-rbi-governor-sanjay-malhotra/articleshow/123232332.cms
[2] https://economictimes.indiatimes.com/industry/banking/finance/banking/banks-free-to-set-minimum-balance-says-rbi-governor-sanjay-malhotra/articleshow/123232332.cms
[3] https://www.thehindu.com/business/Industry/icici-bank-raises-minimum-balance-requirement-for-savings-accounts/article69912896.ece
[4] https://www.business-standard.com/companies/news/civil-society-protests-icici-bank-s-savings-account-minimum-balance-hike-125081100327_1.html