RBI cracks whip on minimum balance penalty

Banks have been told by the Reserve Bank of India (RBI) to be more transparent and levy reasonable penal charges. The central bank is concerned at the rising number of complaints by customers on steep charges by banks if the minimum balance in a savings account dips even marginally.

The minimum balance required by some banks for a savings account on a quarterly basis can be as high as Rs 10,000. Penalties can run up to Rs 750, excluding taxes.

During a meeting with bankers after its mid-term policy review last week, RBI emphasised the need for fairness in service charges. The central bank said instances had been brought to its attention whereby customers were penalised on flimsy grounds.

“Sometimes, even if the minimum balance requirement falls short by Rs 100, complaints have been lodged that some banks charge over Rs 500,” a central bank official said.

Bankers had argued that each customer is made aware of the rules and penalties on maintaining a minimum balance when opening an account. But RBI says banks often increase the minimum balance without the customer even being aware of it.

In June, RBI had constituted a committee to look into the issue of banking services to small and retail customers, including pensioners. Headed by M Damodaan, former chairman of the Securities & Exchange Board of India, it will also suggest a mechanism to expedite grievance redressal. The panel will give its final report by January 14.

At the meeting with bankers, RBI also noted that if an account is not actively tracked by a customer for a long period (for example, if he goes abroad), the bank continues to charge the account until the balance is nil.

During the interaction, banks were also asked to structure charges so that these do not become a deterrent to small customers. “For certain small transactions, it was noticed that the fee for the transaction was higher than the value of the transaction,” RBI told bankers.

However, RBI also said it would continue with its policy of leaving it to individual banks to decide the charges. “The central bank has asked us to be transparent and reasonable in levying charges,” confirmed the chairman of a public sector bank, who attended the meeting.

The number of complaints to the banking ombudsman’s office in RBI had been increasing. In 2008-09, a total of 66,823 complaints were received, of which half were recorded against public sector banks. Data for 2009-10 is yet to be released.