Maintenance of Monthly Average Balance (MAB) has been a sticky point for customers, banks as well as the banking regulator. Interestingly, the Reserve bank of India (RBI) had to revise its Monetary Policy Announcement dated 1st April 2014 regarding MAB through a notification dated 20th November 2014. This Notification suggests a smart way to save on MAB. Let us discuss.
There are several types of saving bank accounts like deluxe, super deluxe, elite, super elite etc. Different kinds of accounts have different types of facilities and therefore different level of monthly average balance (MAB). There is penalty provision for non-maintenance of MAB.
Monthly average balance of an account is calculated by adding up the closing balance of each day of the month and then dividing the total by the number of days in that month. For example, if your account demands a monthly average balance of Rs 25000 and you maintain Rs 7.5 lakh balance just for one day, MAB will be maintained, and penalty will not be levied. If there is shortfall in MAB, a penalty system is there. The penalty amount can be irritating sometimes. You would have seen some accounts with negative balance as well. Keeping in view all these, RBI came with some measures in the Monetary Policy dated 1st April 2014.
The RBI said,“ Banks should not take undue advantage of customer difficulty or inattention. Instead of levying penal charges for non-maintenance of minimum balance in ordinary savings bank accounts, banks should limit services available on such accounts to those available to Basic Savings Bank Deposit Accounts and restore the services when the balances improve to the minimum required level.” (RBI Policy Announcement dated 1stApril 2024). The RBI was against levying penal charges for non-maintenance of MAB. Instead, it suggested for limiting the services offered on those accounts.
RBI had to revise its aforesaid policy announcement in just 6 months. It issues a notification on 20 November 2014 saying that the penalty could be levied in proportion to the shortfall in MAB, an intimation should be sent to customer through SMS/email regarding shortfall (as suggested by Damodaran Committee earlier) and reasonable time (one month) should be given to customer for restoring MAB. Besides this, the penal charges would be decided by the Board of the Bank.
The RBI Notification dated 20 November 2014, had some saving grace. The official drafting the notification was intelligent enough to incorporate some customer-friendly proviso. The annexure to the notification (last point) says, “It should be ensured that the balance in the savings account does not turn into negative balance solely on account of levy of charges for non-maintenance of minimum balance.”
Here lies the catch: banks can’t recover penal charges for non-maintenance of monthly average balance, if you have just Rs 1 or say NIL balance in your account. Any recovery of penal charges from such accounts will result into the account turning negative, a violation of aforesaid RBI guidelines.
Source: RBI Notification RBI/2014-15/308 DBR.Dir.BC.No.47/13.03.00/2014-15 dated 20 Nov 2014
