Customers want returns. PSBs are waiving the minimum balance levy.

The decision, said two bankers close to the matter, follows a regulatory push to address customer grievances, as well as internal surveys that estimated limited revenue loss if such minimum balances are not maintained.

“The Reserve Bank of India wanted us to look into complaints, and this was one of the major areas. We therefore decided to stop minimum balance charges,” said the first of the two bankers, both of whom spoke on the condition of anonymity.

The second banker said state-owned lenders had conducted internal studies showing they could manage easily despite losing the extra revenue from minimum balance levies.

Since June, public sector banks (PSBs) such as Canara Bank, Punjab National Bank, Indian Bank, Bank of Baroda, and Bank of India have dropped charges for not maintaining a minimum average balance (MAB) in savings accounts, five years after India’s largest lender, State Bank of India (SBI), did so.

The step is also aimed at attracting a steady stream of depositors, thereby adding to the savings deposit base, said the two bankers.

“We want more people to open accounts with us since there is no pressure to keep a minimum amount of funds in the account,” said the second banker.

However, the step could prove to be woefully inadequate.

Quest for deposits

The whole banking industry, not just state-run banks, has been struggling to get people to park their savings with them. For instance, while SBI’s savings deposit base grew 2.8% year-on-year in 2024-25, that of HDFC Bank, India’s largest private-sector lender, expanded 5.3%.

Casa (current account savings account) deposits help banks lower their overall cost of funds–current accounts pay no interest and savings deposit rates are significantly lower than those for term deposits.

While the post-covid bull run has got Indians hooked to equities, an over two-decade-low savings rate of 2.5% does little to help retain customer deposits.

“For the customer, banks have now reduced the savings rate to 2.5%, which used to be 3.5-4% not very long ago. So, the customer was earning something at least on savings deposits, but now they have little incentive to keep money in that account,” said Karan Gupta, director and head of financial institutions at credit rating agency India Ratings & Research.

It is only fair that banks stop charging people for not maintaining a minimum balance, because doing so is like forcing customers to keep money despite low rates, Gupta added.

“The easy liquidity and almost assured access to money that savings accounts provide are not free. It comes at a cost—a negative real interest rate. Savings interest rates are much below the inflation rate,” said Deep Narayan Mukherjee, partner and associate director-data science at consulting firm Boston Consulting Group.

Mukherjee added that if savers consider the true opportunity cost, they may prefer to invest in liquid mutual funds and make higher returns, but they would lose some liquidity. “But Casa holders pay a high price for that liquidity.”

Still, PSBs are prepared to let go of a significant revenue stream—they earned ₹2,331 crore from these penalties in 2023-24, showed a parliamentary reply, dated 24 July 2024, from Union minister of state for finance Pankaj Chaudhary. It comes to 0.3% of their FY24 revenue, according to Capitaline.

To be sure, banks never charged such a fee to customers with basic savings accounts, including those opened under the Pradhan Mantri Jan Dhan Yojana, the government’s flagship financial inclusion programme launched in 2014.

Private-sector banks continue to charge customers for failing to maintain a minimum balance in savings accounts, barring the categories mentioned above.

It’s a start

Although PSBs benefit from a strong trust factor, they have been steadily losing deposit market share to private sector banks, which are more effectively bundling investments, insurance, lending, and other value-added services.

The share of deposits in public sector banks (PSBs) dropped by 580 basis points to 55.8% between end-March 2020 and 2025, according to RBI data, while private sector banks saw a 570 basis point rise to 35.2% over the same period. One basis point is one-hundredth of a percentage point.

Now, PSBs believe that focusing on customer experience can help them gain an edge over competitors, said experts.

“The decision by several PSBs to revisit or waive minimum average balance charges reflects a broader strategic realignment toward customer-centricity and inclusion,” said Pratik Shah, partner and national leader-financial services at consulting firm EY India.

He estimated that banks would face an annual revenue loss of around ₹1,700 crore from the move, along with the risk of accounts turning dormant.

To offset this, they are expected to accelerate digital monetization, focus on fee-based income, and deploy analytics-led cross-selling, he added.