Savings Account Slowdown: A Challenge for Banks

The Average Monthly Balance (AMB) is the minimum amount a customer must maintain in a savings account.

- ■Saptarshi Roy Bardhan

If the balance falls below this threshold, most scheduled banks impose a penalty. The exact amount of this penalty varies depending on the type of savings account held.

The practice of maintaining a minimum balance in savings accounts dates back to December 2002. Since there was no explicit directive from the Reserve Bank of India (RBI) regarding the minimum balance requirement, banks were free to determine the threshold based on the costs incurred in maintaining and servicing such accounts. They also independently decided the charges for failing to maintain the required balance.

However, it was reported to the RBI that many banks did not inform customers about these requirements when opening new accounts. Moreover, customers were often not notified about subsequent changes in minimum balance rules or penalties. In response, the RBI issued advisories, which eventually led to a more structured AMB regime. Over time, this turned into a significant source of revenue for certain banks.

Revival of the Debate – November 2014