Govt Reveals ₹9,000 Cr Collected by Banks from Account Holders

Introduction

In a stunning revelation that has drawn sharp public and political reaction, the Government of India has disclosed that public and private sector banks have collected over ₹9,000 crore from account holders in the form of penalties and charges. This data, shared in the Parliament, highlights the fees collected for not maintaining minimum balance requirements, failed ATM transactions, and other “non-maintenance” related charges.

This eye-opening figure sheds light on how routine banking operations—especially among low-income and rural customers—are contributing to an ever-increasing revenue stream for banks at the cost of the common man.

In this article, we explore what led to this massive collection, how these charges work, what regulations are in place, and whether any reforms are in the pipeline to protect consumers.https://sbi.co.in/web/personal-banking

The Shocking Numbers

During a recent parliamentary session, the government confirmed that banks have collected ₹9,183 crore from customers in the last five years for failure to meet various conditions, particularly non-maintenance of minimum balance. The data presented includes collections from major public sector banks (PSBs) like SBI, Punjab National Bank, and private giants like HDFC and ICICI Bank.

While some of this revenue comes from legitimate banking practices, critics argue that these penalties disproportionately affect lower-income individuals, many of whom are unaware of the rules or unable to meet the balance requirements.

What Are These Charges?

Banks levy various charges on customers that can add up significantly over time:

1. Minimum Balance Penalty

Most savings accounts—particularly in urban and metro branches—have a minimum average monthly balance (AMB) requirement. If not met, a penalty is levied.

• SBI: ₹5 to ₹15 + GST
• HDFC Bank: ₹150 to ₹600 per month
• ICICI Bank: ₹100 to ₹500 depending on shortfall

2. ATM Transaction Charges

Beyond the free limit (usually 5 transactions at own bank ATMs and 3 at others), banks charge ₹20 per transaction.

3. Failed Auto-Debits & ECS Mandates

Penalty for failed ECS payments or insufficient balance can be between ₹300 to ₹750.

4. Inactivity or Dormancy Fees

Accounts with no activity for over 12 months may incur reactivation fees.

Who Is Paying the Price?

The impact of these charges is not evenly distributed. The poor and digitally uninitiated bear the brunt:

• Jan Dhan account holders, who initially had zero-balance accounts, often unknowingly fall below balance thresholds after withdrawing their benefits.
• Daily wage earners and pensioners, who may struggle to maintain AMB.
• Rural customers, with limited access to bank branches or awareness of digital alerts, often miss notifications about balance penalties.

These groups end up paying more in penalties than they earn in interest, creating a paradoxical burden on India’s most vulnerable.

Government’s Stance

In response to opposition queries and public outcry, the Finance Ministry clarified that:

• Banks are authorized to levy service charges, including AMB penalties, as long as they disclose them transparently at the time of account opening.
• The Reserve Bank of India (RBI) is monitoring the issue and can intervene if any bank’s penalty structure is found to be “disproportionate.”

While the government defends the autonomy of banks, it also suggested that greater transparency and customer awareness is needed, especially for new or financially illiterate account holders.

RBI Guidelines: Are They Enough?

The RBI has laid down guidelines to regulate service charges:

• Banks must inform customers in advance through SMS or email about penalties and charges.
• Charges must be “reasonable” and “not out of line with the cost incurred.”
• Zero-balance accounts (Basic Savings Bank Deposit Accounts – BSBDA) must not be penalized for not maintaining minimum balances.

However, implementation and enforcement have been patchy. Many banks bury terms in fine print, and customers remain unaware until the damage is done.

Comparisons with Global Practices

Globally, banking fees are increasingly being regulated to protect low-income consumers:

• UK and EU banks are restricted in overdraft fees and must provide no-frills accounts.
• In the US, major banks are under scrutiny for “junk fees” and class-action lawsuits have pushed reforms.
• Singapore and Australia mandate clearer disclosures and often ban minimum balance penalties altogether.

India, in contrast, still allows banks significant leeway, especially in urban markets.

Case Studies: Real-Life Impact

1. Ramu, Daily Wage Worker from Bihar

Ramu opened a savings account under PMJDY. After withdrawing ₹5,000 in subsidy funds, he didn’t deposit more for months. His account was penalized repeatedly, eventually freezing due to a negative balance.

2. Seema, Domestic Worker in Mumbai

She earned ₹9,000 a month but could not maintain ₹5,000 AMB in her HDFC account. Over 8 months, she paid nearly ₹1,200 in penalties—more than the interest she earned.

These are not isolated cases. A 2022 consumer rights report indicated that over 30% of low-income bank customers faced unexplained deductions.

Consumer Reaction and Legal Pushback

Consumer rights groups have raised several concerns:

• Lack of notice before deductions
• Non-consensual charges
• Deductions from subsidy accounts

Several Public Interest Litigations (PILs) have been filed in High Courts and the Supreme Court, calling for:

• A cap on service charges
• Mandatory SMS/email alerts
• Exemption for government benefit accounts

The debate continues as the courts demand clarification from RBI and the Finance Ministry.

Banks Defend the Charges

On the flip side, banks argue that:

• Penalties are a deterrent against account dormancy and ensure system stability.
• Charges help cover costs of servicing accounts, especially in rural areas.
• They are transparent and approved by RBI.

However, public sector banks like SBI have scaled back some of these charges after widespread criticism, suggesting that reforms are indeed possible.

What’s Next? The Road to Reforms

The ₹9,000 crore revelation could serve as a turning point. Several proposals are now under discussion:

Uniform Minimum Balance Across Banks

Eliminate the urban-rural divide and enforce a lower, standardized threshold (e.g., ₹500 for all savings accounts).

Monthly Alerts on Charges

Mandate banks to send detailed SMS/email statements of all service charges incurred.

Regulatory Cap on Penalties

Introduce a ceiling on how much a bank can deduct in one quarter from a customer.

Freezing Penalties on Government Scheme Accounts

Exempt accounts opened under PMJDY, DBT, and other schemes from AMB penalties.

Better Financial Literacy

Government-led awareness campaigns in regional languages to educate citizens on banking rules.

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