India’s financial landscape is witnessing a stark divergence in operational philosophies, particularly evident in the revenue streams derived from minimum average balance (MAB) penalties, with private sector banks collecting over double the amount their public sector counterparts garnered in fiscal year 2026 (FY26). This significant disparity, revealed through provisional data tabled in the Rajya Sabha, highlights a fundamental difference in strategic priorities and customer engagement models between the two dominant segments of the nation’s banking industry. While state-owned lenders increasingly align with a broader financial inclusion mandate, often waiving such charges, private institutions continue to leverage these fees as a notable component of their non-interest income.
During FY26, private sector banks collectively amassed a substantial ₹4,948.71 crore from customers for failing to maintain the stipulated minimum average balances in their accounts. This figure dwarfs the ₹2,137.92 crore collected by the twelve public sector banks (PSBs) over the same period, underscoring a pronounced reliance on these charges by private entities. The data, disclosed by the government in response to a parliamentary inquiry concerning penalties levied by banks, provides a revealing snapshot into the operational economics shaping customer relationships across the banking spectrum. The Reserve Bank of India (RBI) has confirmed it maintains granular data for private sector banks only from FY2022-23 onwards, with the FY2025-26 figures currently being provisional.
Leading the charge among private lenders was HDFC Bank, which alone accounted for a staggering ₹1,798.14 crore in MAB penalties. Following closely was Axis Bank, reporting collections of ₹1,081.33 crore. Other significant contributors to this revenue stream included ICICI Bank with ₹353.50 crore, Kotak Mahindra Bank at ₹290.65 crore, Yes Bank accumulating ₹195.05 crore, IndusInd Bank with ₹177.92 crore, and IDBI Bank collecting ₹175.15 crore. These figures underscore not just the sheer volume of penalties but also the concentrated nature of this income among a few major private players, reflecting their extensive customer base and consistent application of MAB policies.
In contrast, among the public sector banks, the State Bank of India (SBI) recorded the highest collection at ₹477.27 crore. However, a critical nuance here is that SBI’s reported amount pertains exclusively to current accounts, as the bank proactively waived penal charges for non-maintenance of minimum average balances in savings accounts as early as March 2020. This policy shift by India’s largest bank set a precedent for many of its state-owned peers. Other significant public sector collectors included Bank of Baroda at ₹394.10 crore, Indian Bank at ₹299.17 crore, Canara Bank at ₹213.48 crore, and Punjab National Bank (PNB) at ₹206.68 crore.
The parliamentary disclosure further illuminated a clear trend of moderation in fee collections among public sector banks, largely attributed to a concerted effort by many lenders to withdraw such charges on savings accounts. This strategic realignment is a direct consequence of a broader mandate towards enhancing customer centricity and promoting inclusive banking, often guided by governmental directives. For instance, PNB’s collections experienced a dramatic decline, falling from ₹674.04 crore in FY2023-24 to ₹206.68 crore in FY2025-26. Similarly, Bank of Baroda saw a slight reduction from ₹443.30 crore in FY2023-24 to ₹394.10 crore in FY2025-26. The unique case of SBI, where collections actually rose from ₹190.68 crore in FY2021-22 to ₹477.27 crore in FY2025-26, is an outlier explained by its focus on current accounts, which typically cater to businesses and affluent individuals, rather than general savings accounts.
Minister of State for Finance Pankaj Chaudhary confirmed that 10 out of the 12 public sector banks have indeed discontinued penal charges for non-maintenance of minimum average balances in savings accounts. The remaining two have rationalized their charges, adhering to their board-approved policies and commercial considerations. This systematic rollback by PSBs underscores a significant policy pivot, aiming to alleviate the financial burden on a vast segment of the population and foster greater financial inclusion. This move is particularly impactful for lower and middle-income groups, who often struggle to maintain consistent balances due to fluctuating incomes or unexpected expenses.
Moreover, the government reiterated that Basic Savings Bank Deposit Accounts (BSBDAs), which encompass accounts opened under the ambitious Pradhan Mantri Jan Dhan Yojana (PMJDY), are explicitly exempt from any minimum balance requirements and associated charges. With approximately 730 million BSBDAs, including PMJDY accounts, falling under this protective umbrella, a substantial portion of India’s banking populace is safeguarded from MAB penalties. This policy is a cornerstone of India’s financial inclusion drive, ensuring access to formal banking services without the deterrent of minimum balance requirements.
The regulatory framework, as outlined by the RBI, permits banks to levy charges for non-maintenance of minimum average balances in accordance with their board-approved policies. However, these guidelines stipulate that such charges must be "reasonable, transparent, and commensurate with the cost of providing banking services." Furthermore, banks are mandated to proactively notify customers through various channels like SMS, email, or letters when their account balance falls below the agreed minimum, providing them with a grace period to restore the required balance before any penal charges are applied. This regulatory oversight aims to balance banks’ operational costs with consumer protection.
The rationale behind minimum balance requirements historically stems from banks’ need to cover administrative costs associated with maintaining accounts, discourage dormant accounts, and encourage higher deposit mobilization. For private banks, these penalties often represent a dual advantage: a direct revenue stream that contributes to non-interest income and a mechanism to segment their customer base, implicitly encouraging higher-value relationships. Analysts suggest that for many private lenders, MAB penalties, along with other service charges, form a crucial part of their fee-based income, which helps diversify revenue away from traditional interest income and bolster profitability. This strategy aligns with their focus on acquiring and retaining more affluent customers who are less likely to fall below MAB thresholds or are willing to pay for premium services.
Conversely, public sector banks, with their broader social mandate and often significant government ownership, have historically been at the forefront of financial inclusion initiatives. The move to waive MAB charges on savings accounts reflects a strategic alignment with national objectives, prioritizing accessibility and affordability over direct revenue generation from penalties. This shift, while potentially impacting their fee income, is expected to enhance customer loyalty, attract new depositors, and reduce the likelihood of account closures due to penalty accumulation. It also mitigates the risk of reputational damage and consumer backlash, which can be significant for institutions with a public service ethos.
The divergent approaches create a complex dynamic in the Indian banking market. Customers now face a clear choice: opt for private banks, which often offer technologically advanced services and a wider array of products but might come with stricter MAB rules and associated penalties, or choose public sector banks that, while sometimes perceived as less agile, offer the security of no MAB charges on basic savings accounts. This bifurcation could lead to a ‘two-tiered’ banking experience, where financial sophistication and accessibility are intertwined with cost structures. Economists predict that increased financial literacy and awareness among consumers will drive greater account mobility, pushing banks to either rationalize their fee structures or enhance their value propositions significantly.
Looking ahead, the trend suggests continued pressure on private banks to review their fee structures, especially if public sentiment or regulatory scrutiny intensifies. While MAB penalties contribute to their bottom line, the long-term strategic advantage might lie in fostering deeper customer relationships built on trust and transparent service. The evolving digital banking landscape, with its emphasis on low-cost operations and personalized services, could also reshape how banks view and implement such charges. The ongoing parliamentary oversight and the RBI’s emphasis on reasonableness and transparency indicate that the regulatory environment will continue to play a crucial role in shaping the future of minimum balance requirements, ensuring that India’s banking sector balances profitability with the imperative of widespread financial access.
