The term deposit rate of more than one-year duration has come down to 5.85/6.70 per cent from 6.00/7.30 per cent
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Public sector banks (PSBs) are trying to perform a balancing act for retaining existing depositors and acquiring new ones in the current falling interest rate regime.
The banks are waiving penal charges for non-maintenance of average monthly balance (AMB) in savings bank (SB) deposits.
This comes at a time when they are cutting interest rates on both SB and fixed deposits (FDs) amid abundant liquidity and the cumulative 100 basis points cut in the repo rate (from 6.50 per cent to 5.50 per cent) effected by the RBI’s monetary policy committee (MPC).
As on June 20, 2025, the average SB rate of banks has declined to 2.50/2.75 per cent from 2.70/3.00 per cent on June 21, 2024, per RBI data.
Further, the term deposit rate of more than one-year duration has come down to 5.85/6.70 per cent from 6.00/7.30 per cent.
While the move to waive penal charges for non-maintenance of AMB in SB accounts is seen as a way to keep the depositors from moving to alternative investment avenues such as mutual funds, non-convertible debentures, equities and gold for better returns, experts caution that it could increase dormant accounts in the system.
‘Increases risk of dormant accounts’
In the last one month or so, PSBs such as Canara Bank, Punjab National Bank and Indian Bank have waived penal charges for non-maintenance of AMB in SB deposits. State Bank of India had waived the penalty for non-maintenance of AMB in SB accounts with effect from March 11, 2020.
“This is a bad move. It’s alright to allow it as part of a package deal for all salary accounts of a company (where overall the bank gets good balance from higher salary employees, plus cross sell), but not for all. The minimum balance requirements for most SB accounts are quite low,” said a senior executive of a PSB.
Banking expert V Viswanathan noted that only PSBs are waiving the penalty for non-maintenance of AMB in SB accounts. He cautioned that this move increases the risk of more dormant accounts in the system.
V Rama Chandra Reddy, Head–Treasury, Karur Vysya Bank, observed that Banks’ are currently facing challenges in augmenting their low-cost CASA (current account, savings account) portfolio, as depositors today have a wider array of options to deploy their savings, driven by increased financialisation and fragmentation of household investments in recent years.
“In the backdrop of repo rate cuts and an overall easy monetary policy, banks have responded by reducing SB interest rates to manage their cost of funds and partially offset the margin compression arising from lower lending rates.
“While such a reduction in SB rates offers immediate relief on interest costs, there is a risk of impacting SB deposit mobilisation,” he said.
Hence, to mitigate this risk and retain customer stickiness, banks are compensating by waiving minimum balance charges and offering additional non-monetary benefits.
While these measures may have a marginal impact on fee-based income, the savings achieved through lower interest outgo are significantly more meaningful from a profitability standpoint, per Reddy’s assessment.
However, he warned that waiving minimum balance charges removes the financial obligation for customers to maintain a prescribed balance, which may reduce the motivation to keep their accounts active.
Published on July 4, 2025