Minimum balance, maximum banking

Anand Aras

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Prashant issued a cheque from his savings bank account which he thought had enough balance. When his cheque was dishonoured due to insufficient funds, he checked the statement and found that the bank had debited charges several times for lack of minimum balance.

Saloni worked for a private company and had a salary account with a private bank. Two years later, she changed her job but forgot to close her salary account. After a period of time, she deposited a cheque and was surprised to find that the bank had debited her account more than once for not having minimum balance.

Both Prashant and Saloni lost money because they failed to maintain minimum balance in their savings bank (SB) accounts.

How it’s calculated

Banks have different rules for calculating minimum balance. Most banks calculate the Average Monthly Balance (AMB) or Average Quarterly Balance (AQB) to fix minimum balance.

For rural areas, some banks go by the Average Half-yearly Balance (AHB) requirement.

For variants of SB accounts, some private sector banks calculate Customer Relationship Value (CRV) based on a combination of balances in savings account, current account and fixed deposits. Others follow the Net Relationship Value (NRV), the sum total of the balance in savings, current and fixed deposit accounts, and investments.

Private sector and foreign banks usually have one SB variant for premium clients — the aggregate balance in savings accounts of family members and not just the balance in savings accounts of individual clients.

What guidelines say

Though there are no regulatory guidelines for arriving at a fixed minimum balance, at the time of opening a new account, banks are required to inform customers of the requirement as well as charges, if any, for not maintaining it.

While most banks display the minimum balance requirement for various SB accounts on their websites, they should disclose it as part of the Most Important Terms and Conditions (MITC) or provide a separate annexure along with the account opening form.

The Code of Bank’s Commitment to Customers — first released in 2006 by the Banking Codes and Standards Board of India (BCSBI) — stipulates that customers should be informed 30 days in advance about any impending revision in minimum balance and the penal charges should be directly proportionate to the extent of shortfall in the minimum balance of SB accounts.

In other words, the charges should be a fixed percentage of the difference between the actual balance maintained and the minimum balance agreed upon at the time of opening the account.

Banks can, however, finalise a suitable slab structure for recovery of charges.

When customer defaults

If an account holder defaults on minimum balance or average minimum balance, as agreed with the bank, the latter should inform the customer (via sms, email, letter etc.) that, if minimum balance is not restored within a month from the date of notice, then he or she would be liable to pay a penalty.

And if minimum balance is not restored within a reasonable period, which shall not be less than a month from the date of notice of shortfall, penal charges may be recovered as intimated to the account holder.

Losing benefits of your salary account

In most banks, the minimum balance rule does not apply to corporate salary accounts. But when customers fail to close such accounts after changing jobs, banks convert the salary accounts to normal SB accounts. However, they do so after ensuring no salary was credited for a minimum of three consecutive months.

Again, as per the Code of Bank’s Commitment to Customers, banks must advise customers about the change in requirement of minimum balance and imposition of service charge, if and when they decide to convert the salary account to a regular savings account.

No service charges for inoperative/dormant accounts

The RBI has stipulated that banks cannot keep levying service charges for lack of minimum balance if an account goes into negative balance or if it becomes inoperative or dormant.

What banks must do

Banks should display the details of minimum balance and penal charges for savings bank accounts on their websites as well as on notice boards in every branch. Banks must also share this information with new customers.

A bank must give customers at least a month’s notice before it revises the minimum balance. However, it’s up to customers to decide if they want to opt for the revised charges or switch to an account, like Basic Savings Bank Deposit Account (BSBDA), that does not require minimum balance. Such accounts are, however, not without certain restrictions.

So whether you are an existing or a new customer, make sure your bank provides you with maximum information on minimum balance in your savings bank account.

N.B.: Names of people are for representative purpose only.

The writer is CEO, Banking Codes and Standards Board of India. The views expressed in this article are his own