Minimum balance penalty by banks must be reasonable: Government

The charges levied by banks in case minimum balance is not maintained in accounts must be reasonable, and should be a fixed percentage on the difference between the actual and required balance, the government said on Tuesday.

"Banks should ensure such penal charges are reasonable and not out of line with the average cost of providing the services," Minister of State for Finance Santosh Kumar Gangwar said in a written reply in the Rajya Sabha.

"In case a customer fails to ensure minimum balance within a month, the banks can levy penal charges, which should be a fixed percentage levied on the difference between the actual balance maintained and the minimum balance agreed upon at the time of opening of the account," he said.

The Minister said that in the event of default on agreed minimum balance/average minimum balance, the bank should notify the customer clearly through SMS, email or letter that in case the minimum balance is not restored within a month from the date of notice, penal charges will be applicable. If the customer maintains the minimum balance within one month, no penal charges should be levied, he added.

Scheduled commercial banks (excluding regional rural banks) have the freedom to fix service charges on various services rendered by them, as per their board-approved policy subject to general instructions on levy of service charges by banks contained in the Reserve Bank of India's Master Circular.

The RBI has said that banks have been advised that when opening an account, they should inform customers in a transparent manner regarding the requirement of maintaining a minimum balance and levy of charges in case of default. 

The banks should also inform, at least one month in advance, the existing account holders any change in the prescribed minimum balance limit and the charges that may be levied in case of default. 

As regards levy of penal charges on non-maintenance of minimum balances in saving accounts, banks have been advised to formulate a policy on penal charges with the approval of the bank board concerned.