Indian banks have collected a staggering ₹4,818 crore in penalties from customers failing to maintain minimum balances in the fiscal year 2024-25. A new report tabled in the Lok Sabha reveals that private lenders are the primary beneficiaries of these charges. The revelation has triggered strong calls from a parliamentary committee for immediate reforms to protect low-income depositors.
Private Lenders Drive the Penalty Surge
The banking sector saw a clear divide in penalty collections this fiscal year. Public sector banks reported an 8 percent decline in these earnings. They collected ₹2,045.7 crore. In contrast, private banks saw their collections swell to approximately ₹2,772.2 crore.
This shift highlights a growing reliance on non-interest income among private players. The report points to specific heavyweights leading this trend. HDFC Bank alone accounted for nearly 40 percent of the total collections among private lenders.
Axis Bank followed with a 25 percent share. ICICI Bank contributed roughly 8.4 percent to the private sector total. These figures suggest that strict penalty structures are now a significant revenue stream for major private financial institutions.
Committee Demands Urgent Policy Overhaul
The Committee on Petitions has expressed serious concern over these rising figures. Chaired by MP Chandra Prakash Joshi, the panel labeled the current penalty structures as “disproportionately high.” They argued that these charges cause undue stress to account holders.
The committee proposed a radical shift in how banks handle low balances. They suggested that banks should stop treating non-maintenance as a violation. Instead, the shortfall could be treated as a temporary loan.
Under this proposed model, banks would only recover a reasonable interest amount. This would replace the heavy fixed penalties currently in place. The panel also recommended a lifetime cap on such charges.
Proposed Reforms at a Glance:
- Cap on Penalties: Total charges should never exceed the minimum balance requirement itself.
- Loan Approach: Treat balance shortfalls as small loans with standard interest rates.
- Fund Blocking: Block the minimum amount from withdrawal instead of levying fines.
The Math Against the Common Depositor
The report highlights a stark imbalance between interest earned and penalties charged. Customers typically earn modest returns on their savings. Most banks offer interest rates between 2.5 percent and 4 percent per annum.
However, the cost of falling below the limit is severe. The penalty often amounts to 15 to 20 times the interest a customer would have earned. This pricing structure disproportionately impacts those with irregular income flows.
Economically weaker sections face the brunt of these rules. A single penalty can wipe out months of accrued interest. The committee noted that while the incentive to comply is low, the cost of non-compliance is financially crippling.
Regulatory Response and Banking Trends
The Department of Financial Services responded to the committee’s findings. They clarified the current regulatory stance. The Reserve Bank of India permits banks to levy these charges under board-approved policies based on circulars from 2014 and 2015.
Recent trends show a divergence in banking strategies. Some public sector giants like State Bank of India have moved to waive these penalties to boost financial inclusion. Punjab National Bank and Canara Bank have adopted similar customer-friendly approaches.
Conversely, some private banks are tightening norms. ICICI Bank sharply raised its minimum average balance requirement for new accounts in August 2025. This contrast sets the stage for a potential regulatory showdown regarding fair banking practices.
The massive ₹4,818 crore figure serves as a wake-up call. It highlights the need to balance bank profitability with consumer protection. As the debate heats up in parliament, millions of account holders await a decision that could safeguard their hard-earned savings.
