Public sector banks in India are set to eliminate penalties for not maintaining a minimum balance in savings accounts, a move driven by concerns from the finance ministry over declining low-cost deposits. This decision follows the lead of the State Bank of India (SBI), which had previously removed such penalties. The initiative is expected to encourage more customers to maintain their savings accounts, thereby increasing the Current Account Savings Account (CASA) deposits, which are crucial for banks as they provide a stable source of funds at a lower cost.

The finance ministry’s concerns stem from the observation that low-cost deposits have been on a downward trend, which could impact the banks’ ability to lend at competitive rates. By removing these penalties, banks aim to attract more customers who might otherwise be deterred by the additional charges. This policy change is also influenced by data from Jan Dhan accounts, which have shown significant growth and engagement without the burden of minimum balance requirements.

To compensate for the loss of revenue from these penalties, banks are exploring alternative fee structures. One such measure includes increasing charges on debit card transactions and other banking services. This approach allows banks to maintain their revenue streams while offering more customer-friendly policies.

The move is expected to have a positive impact on financial inclusion, as it reduces barriers for individuals who might struggle to maintain a minimum balance. By making banking services more accessible, public sector banks can expand their customer base and enhance their role in the financial ecosystem.

Overall, this strategic shift reflects a broader trend towards customer-centric banking practices, aligning with global standards and enhancing the competitiveness of Indian public sector banks.