PSBs Drop Minimum Balance Penalty to Win Back Savers

Public Sector Banks Ditch Minimum Balance Charges: A Gamble for Growth?

In a bold move to combat dwindling savings rates and attract new customers, India's public sector banks (PSBs) are eliminating charges for failing to maintain minimum average balances (MAB) in savings accounts. This follows a regulatory push to address customer complaints and internal studies suggesting manageable revenue loss.

A Wave of Change: Several major PSBs, including Canara Bank, Punjab National Bank, Indian Bank, Bank of Baroda, and Bank of India, have joined the trend, following in the footsteps of SBI, which implemented the change five years ago. This decision, according to anonymous bankers close to the matter, aims to boost deposits by making account opening more accessible.

• The Incentive: "We want more people to open accounts with us since there is no pressure to keep a minimum amount of funds in the account," stated one banker.
• The Risk: PSBs earned ₹2,331 crore (approximately $280 million USD) from these penalties in 2023-24, representing 0.3% of their annual revenue.

A Broader Struggle: The entire banking sector faces a challenge in attracting deposits, especially given historically low savings rates (currently at a two-decade low of 2.5%). While SBI's savings deposits grew by 2.8% year-on-year in 2024-25, HDFC Bank, a private sector leader, saw a significantly higher 5.3% growth.

Is it Enough? Experts like Karan Gupta, director at India Ratings & Research, argue that eliminating MAB charges is a necessary step given the low interest rates offered on savings accounts. The low interest rates, coupled with the ease of access, make savings accounts less attractive compared to other investment options, such as liquid mutual funds.

Deep Narayan Mukherjee, from Boston Consulting Group, highlights the "negative real interest rate," stating that the convenience of savings accounts comes at a cost—a return below the inflation rate. This pushes savers to explore higher-yielding alternatives, even if it means sacrificing some liquidity.

A Shift in Strategy: While PSBs traditionally enjoy strong public trust, they've been losing market share to private sector banks that offer more bundled services. This move signals a renewed focus on customer experience and inclusivity.

• The Potential Cost: EY India estimates an annual revenue loss of approximately ₹1,700 crore (approximately $205 million USD) for PSBs from this initiative, along with the risk of dormant accounts.
• The Plan: To compensate, PSBs are expected to enhance digital services, focus on fee-based income, and utilize data-driven cross-selling strategies.

The Bottom Line: While the elimination of MAB charges is a positive step for customers, it's a calculated risk for PSBs. The success of this strategy will depend on their ability to attract new deposits and compensate for the loss of revenue through innovative and customer-centric approaches.