Keep minimum balance in SBI accounts or pay levy

From the beginning of the next financial year (April 1), failing to maintain a monthly average balance (MAB) in your State Bank of India (SBI) savings accounts will attract a charge.

SBI had suspended this charge in July 2012 to expand its customer base and generate low-cost deposits, as those in savings account earn interest rate of only 4 per cent. The bank said it is resuming the charge to partly cover costs for maintaining systems and operations of savings accounts. The charge will be calculated based on the gap between the MAB and the actual balance in the accounts.

According to an SBI communication, MAB for those with accounts at branches in metropolitan areas would be Rs 5,000. If the difference between the MAB and the actual amount in the account is 50 per cent or Rs 2,500, SBI will slap a charge of Rs 50. If the difference is between 50 and 75 per cent, SBI will charge Rs 75, and till 100 per cent, it will charge Rs 100.

For rural areas, MAB is lower — Rs 1,000. The penalty for not maintaining MAB is also much lower.

A senior SBI executive said the bank had, at present, 250 million savings accounts. “Since Prime Minister announced demonetisation of old Rs 500 and Rs 1,000 notes on November 8 last year, the bank had opened a large number of savings accounts — especially till end-December,” he said.

The executive added, “Managing these accounts, including those with zero balance, involves expenses such as running operations and systems. It is also an effort to stem the outflow of money from savings accounts, especially those opened recently.”

SBI is not alone. Private banks also charge a levy for non-maintenance of minimum balance.

For instance, HDFC Bank’s average monthly balance (AMB) requirement for a regular savings account is Rs 10,000 for metro or urban branches and Rs 5,000 for semi-urban branches. If the actual amount in the savings account is greater than or equal to Rs 7,500 but less than Rs 10,000, a levy of Rs 150 is charged; if it is greater than or equal to Rs 5,000 but less than Rs 7,500, there is a levy of Rs 300. There is no levy in semi-urban areas.

If AMB is greater than or equal to Rs 2,500 but less than Rs 5,000, urban and metro customers are charged Rs 450 while semi-urban customers have to pay Rs 150. Likewise, if AMB is below Rs 2,500, customers in urban and metros have to pay a charge of Rs 600, while the same is Rs 300 for semi-urban. For rural branches, the average quarterly balance (AQB) is Rs 2,500 or fixed deposit of Rs 10,000 for a minimum of a-year-and-a-day period is mandated. If AQB is lower than Rs 2,500 but equal to or more than Rs 1,000, the levy is Rs 270, while the same is Rs 450 if AQB is below Rs 1,000. Service tax and cess are also applicable.

The country’s top private banks such as HDFC Bank, ICICI Bank and Axis Bank have also taken steps to cover costs. In the past few days, they have re-introduced charges on cash transactions through branch walk-ins beyond a few free ones. SBI also charges customers for cash withdrawals at branches beyond certain free transactions, but these (typically Rs 50 per transaction plus service tax) are much lower than those of private banks.

While each of the three private banks have different ways of charging their customers, analysts said HDFC Bank might see larger gains as charges have increased by Rs 50 to Rs 150 (taxes as applicable) per transaction (beyond the initial free ones in a month) as the bank reintroduced them. For Axis Bank and ICICI Bank, this may not move the needle much as the quantum of charges remains at pre-demonetisation levels.

“We have only reintroduced these charges,” an Axis Bank spokesperson said.

Analysts are also questioning if banks had to take this step to push their customers towards digital payment modes.

“Having invested heavily on technology, what the banks have done makes sense,” said R Sreeshankar, head of research, Prabhudas Lilladher.

He feels banks are moving towards globally accepted practices of charging customers for branch transactions.

Deven Choksey, managing director, KRChoksey Investment Managers, said by reintroducing charges on cash transactions, banks were creating a level playing field between cash and digital operations. “Digital transactions are income lucrative and by reintroducing charges banks are perhaps plugging the gap,” he added.

The average cost incurred towards servicing a customer at branches is pegged at Rs 50-70. Experts said tightening costs was essential to remain profitable, given the current competition.

The move also comes at a time when banks, both public and private, could see pressure on non-interest income. With bond yields inching up, analysts are predicting that banks might see sober treasury gains (some may even report a treasury loss) in the March quarter.

Rajnish Kumar, managing director, National Banking Group, SBI, said the bank had reduced interest rates on term deposits, up to 5 basis points in certain maturity buckets in March. SBI’s rates in certain maturity buckets were higher than the market rates.

The bank was in a comfortable position as far as resources were concerned because of surge in the deposits after demonetisation. Ruling out revision in lending rates for now, Kumar said these would remain stable.

“There is little room for change after a sharp 90 basis point cut in the marginal cost of funds-based lending rate in January,” he added.