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The Average Monthly Balance (AMB) is the minimum amount a customer must maintain in a savings account. If the balance falls below this threshold, most scheduled banks impose a penalty. The exact amount of this penalty varies depending on the type of savings account held.

The practice of maintaining a minimum balance in savings accounts dates back to December 2002. Since there was no explicit directive from the Reserve Bank of India (RBI) regarding the minimum balance requirement, banks were free to determine the threshold based on the costs incurred in maintaining and servicing such accounts. They also independently decided the charges for failing to maintain the required balance.

However, it was reported to the RBI that many banks did not inform customers about these requirements when opening new accounts. Moreover, customers were often not notified about subsequent changes in minimum balance rules or penalties. In response, the RBI issued advisories, which eventually led to a more structured AMB regime. Over time, this turned into a significant source of revenue for certain banks.

Revival of the Debate – November 2014

The issue resurfaced in 2014 following the Damodaran Com-mittee Report on Customer Service in Banks, which criticized the imposition of penalties on savings account holders for failing to maintain AMB. This critique gained more attention amid the country’s push for financial inclusion—a drive to extend banking services to remote areas and build infrastructure for seamless electronic transfer of welfare benefits.

One of the key recommendations of the Committee was that banks should not exploit customers’ difficulties or lapses. Instead of levying penalties for non-maintenance of AMB, it proposed that banks restrict services on such accounts—similar to Basic Savings Bank Deposit Accounts (like Jan Dhan accounts under the Pradhan Mantri Jan Dhan Yojana)—and restore full services once the balance is replenished.

Following stakeholder consultations and the Committee’s recommendations, the RBI directed banks to adhere to the following additional guidelines while levying charges:

► Advance Notice: If a customer fails to maintain the agreed AMB, the bank must inform them via SMS, email, or letter that penalties will be applied unless the balance is restored within one month. ► Time Frame: Penalties can only be levied if the balance is not restored within a reasonable period—at least one month from the notice date. ► Board Approval: The policy on penal charges must be approved by the bank’s Board.

► Proportional Penalties: Charges must be proportional to the shortfall—calculated as a fixed percentage of the difference between the required and actual balance, ideally structured in a transparent slab system. ► Reasonableness: Penalties must reflect the actual cost of providing the service and should not be excessive.

No Negative Balance: Charges must not result in a negative account balance solely due to penalty imposition.

Customer Resistance and Revenue Motive

Despite regulatory endorsement, AMB (or AQB – Average Quarterly Balance) requirements have often faced resistance from customers. In the pre-UPI era, cash was the primary mode of transaction. Thus, locking in funds—earning a meagre 2–3% annual interest—was not well received by account holders.

Public Sector Banks (PSBs), in an effort to boost performance, began focusing on these charges as a low-effort revenue stream, automated through programmed algorithms. Some even incorporated the penalty as a product feature—examples include zero-balance salary accounts for employees and bundled family accounts offering flexibility by calculating AMB on an aggregate basis.

Data from the Finance Ministry shows that between FY20 and FY24, penalty collections by PSBs for AMB non-compliance rose from ₹1,738 crore to ₹2,331 crore. This is despite SBI discontinuing such charges in FY20, following an RTI revelation that its earnings from AMB penalties exceeded its net profit and were being used to offset bad loan provisions.

Recent Concerns and Emerging Challenges

In its Financial Stability Report (June 2025), the RBI flagged a shift in banks’ liability structures, with a growing share of higher-cost term deposits and Certificates of Deposit (CDs), as opposed to low-cost Current Account Savings Account (CASA) deposits. This evolving scenario could render AMB penalties counterproductive.

From the RBI’s perspective:

“The cost of CASA funds is the lowest for banks. Therefore, as a matter of business prudence, banks should avoid creating adverse situations by continuing to impose such penalties.”

This insight is reinforced by the performance of Jan Dhan accounts, which do not attract AMB penalties but have seen robust deposit mobilisation—₹2,63,954.98 crore as of mid-July 2025. This serves as a valuable signal for both public and private sector banks to reassess the viability and fairness of AMB penalties as a policy.