RBI Grade BNABARD ESISEBI
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Context:
In a significant policy shift, public sector banks (PSBs) are reconsidering the need for minimum balance requirements in savings accounts, following discussions with the Finance Ministry. This move comes amid concerns over the declining share of Current Account and Savings Account (CASA) deposits in overall bank liabilities.
Key Developments
- Banks that have scrapped the requirement recently:
- Canara Bank
- Bank of Baroda
- Punjab National Bank
- Indian Bank
- No penalty will be levied on customers for non-maintenance of minimum balance.
- The Finance Ministry questioned the rationale of penalizing customers, especially at a time when low-cost deposits are falling.
Context and Rationale
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- As per RBI’s June 2025 Financial Stability Report, the share of CASA deposits is declining, while banks are relying more on high-cost term deposits and certificates of deposit (CDs).
- Jan Dhan Yojana (PMJDY) account performance showed that even dormant accounts gradually accumulated balances, encouraging banks to rethink the relevance of minimum balance norms.
- SBI had already removed this requirement in 2020 after public backlash, especially following RTI revelations that penalty collections exceeded net profit in some years.
Changing Banking Economics
- Traditionally, savings accounts were a source of low-cost funds used to cross-subsidize free banking services.
- However, digital banking has reduced service costs, prompting banks to seek alternative sources of cost recovery:
- Debit card charges
- Fees for exceeding free transaction limits
- Private banks, though generally stricter, often waive minimum balance requirements on:
- Salary accounts
- Accounts meeting a broader “relationship value” threshold (e.g., FDs, mutual funds)
