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The article reveals that public sector banks (PSBs) in India have collected a staggering Rs 8,495 crore over the past five years from depositors who failed to maintain the minimum balance in their savings accounts. This equates to an average annual collection of Rs 1,699 crore, exceeding the government's allocated budget for incentivizing account-to-account payments. The data shared by the finance ministry highlights the progressive increase in the amount collected as penalty for failing to meet minimum balance requirements, rising from Rs 1,738 crore in FY20 to Rs 2,331 crore in FY24. Despite State Bank of India (SBI) discontinuing minimum balance charges after FY20, following an RTI query that revealed a substantial portion of the bank's profits stemmed from these penalties, other banks have continued to impose these charges.
Punjab National Bank emerged as the top collector of minimum balance fines, gathering Rs 1,538 crore in the last five years. Other major banks, including Indian Bank, Bank of Baroda, and Canara Bank, collected substantial sums as well, amounting to Rs 1,466 crore, Rs 1,251 crore, and Rs 1,158 crore, respectively. The government has allocated Rs 1,441 crore in the current budget to incentivize banks to provide free account-to-account transfers using UPI payments and RuPay debit cards, recognizing the importance of digital payments in fostering a cashless economy. Notably, the government had allocated Rs 2,485 crore for similar incentives in the previous budget.
The practice of imposing penalties for not maintaining minimum balance is not a new phenomenon in the Indian banking sector. While historically, banks relied on the difference between interest earned on loans and paid on deposits to cover operational costs, the liberalization of the banking sector led to the introduction of charges for non-compliance with minimum balance requirements. This practice gained traction after the widespread adoption of computerization in banks. The rationale behind incentivizing digital payments stems from the fact that money remains in the banking system for extended periods, reducing the demand for physical cash and facilitating a more efficient financial ecosystem. However, the significant revenue generated from minimum balance penalties raises concerns about their potential impact on account holders, particularly those with limited financial resources.
Source: Min balance fines fetch PSBs Rs 8.5k crore in 5 years