To retain existing depositors and attract new ones amid competition for deposits, State-owned banks are waiving penalties for not maintaining the minimum monthly average balance (MAB) in savings accounts, senior bankers told Business Standard.
Bank of Baroda, Indian Bank, Canara Bank and Punjab National Bank have removed charges on the shortfall in maintaining the MAB.
Bankers said this move was expected to help lenders get deposits, especially from low-income groups, which often struggle to maintain the minimum balance.
This comes at a time when interest rates on both savings accounts and fixed deposits have been reduced, following a cumulative 100 basis point cut in the repo rate to 5.50 per cent from 6.50 per cent by the Reserve Bank of India's monetary policy committee.
"Banks have repriced interest rates on loans because the RBI has reduced the repo rate. At the same time, banks have reduced interest rates on deposits to counter the negative impact of the rate cut on loan-interest margins. Therefore, to retain depositors, banks are giving this leeway to their customers as already interest rates on savings accounts are minimal,' said a senior functionary at a State-owned bank.
The average interest rate on savings bank accounts has declined to 2.50 to 2.75 per cent. Additionally, the term-deposit rate for terms of more than one year has come down to 5.85 to 6.70 per cent from 6 to 7.30 per cent.With State-owned banks waiving the requirement of having a minimum monthly average balance on savings, it will impact banks' non-operating income, and the cut in savings account interest rate will cushion some of the impact, bankers said.
They added that the number of accounts failing to maintain the minimum monthly balance had risen in the past two-three years, boosting fee incomes and aiding overall profitability.
Additionally, bankers pointed out that doing away with charges for not maintaining the minimum balance might increase the risk of dormant accounts going up in number.
"There has been a surge in inoperative accounts. This will encourage customers to not keep any balance in the account, hence they will become inoperative in some time and banks have to bear the cost of maintaining them," said an analyst with a rating agency.
-- Anupreksha Jain, Business Standard
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