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Uncovering the Grey Areas of Indian Banks: My Experience with Non-Maintenance Penalties and Negative Balances

TechnoFino

Founder
TF Family
Founder
Admin
Hello everyone,
Earlier, I posted about an incident where AU Bank turned my account balance negative and asked me to pay to continue using the account. You can read the article here.
Today, I would like to point out some problems with the system. In my opinion, the RBI should work on these points to protect customers' interests.

When you open a bank account with a bank, the bank asks you to maintain a certain amount (minimum balance) in your account. Otherwise, they will charge you non-maintenance penalties. These charges can vary from bank to bank.
If you do not maintain the required minimum balance, the bank charges you non-maintenance penalties according to their SOC (Schedule of Charges). They will continue to do this every month until your bank account balance becomes zero.

For example, suppose you have a bank account with a 10,000 AMB requirement, and you do not maintain 10,000. In that case, the bank will charge you non-maintenance fees every month until your balance becomes zero, or you start maintaining 10,000.

Here is the RBI guideline regarding non-maintenance penalties, I am quoting for you:
RBI Guideline -
RBI/2014-15/308 DBR.Dir.BC.No.47/13.03.00/2014-15, Point no (vi) "It should be ensured that the balance in the savings account does not turn into negative balance solely on account of levy of charges for non-maintenance of minimum balance."
link- https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=9343&Mode=0

But some banks, mainly private sector banks, still charge non-maintenance penalties even after your account balance becomes zero.
Do they make your account balance negative?
Not exactly. They have found a smart way to bypass RBI guidelines. They continue to charge you non-maintenance penalties even after your balance becomes zero, but they don't make your actual account balance negative. They just hold the negative balance for future debit. If you check your account details, you will see "Account balance," "Hold balance," and "Overall balance." So, although you have a negative balance overall, your actual balance will never become less than zero because that's against RBI guidelines. Instead, they will hold the negative balance for future debit. That means if you have a hold balance of -5000 and deposit 10,000 rupees in your account, your actual account balance will be only 5,000 rupees.
When you complain to the RBI banking ombudsman, the bank will send your account statement to the RBI, which will show your bank account balance as zero. However, the RBI does not check the hold balance or its reason. So they can close your case without any action.

So, what is the meaning of the RBI guidelines here? Banks are smarter than the RBI, and ultimately customers are suffering. I would request the RBI to look into this matter and update the guidelines to protect customers' interests.

Now, let me share what AU Bank did after I complained to the RBI against them. They closed my bank account without even asking me, and the reason is very silly: "Unsatisfactory/inappropriate conduct of the account."
Screenshot_20230419_204259_Gmail.jpg
My question to AU Bank is, what have I done? If I have used my bank account for any inappropriate transactions, why don't you take legal action against me? The main problem is that I filed a complaint against them with the RBI banking ombudsman and highlighted the grey areas that all banks are using to fool their customers.

I strongly request everyone to file a complaint with the RBI if you face such problems from any Indian banks. And I also request the RBI to look into this matter and update the guidelines to protect customers' interests.
 
As a banker, I see no issues in the said practice. All such charges as kept under 'unrecovered charges' and will only be recovered if there are funds in the account and the practice is not in violation of the RBI direction. This is the norm across industry, all PSBs follow the practice (some private players do violate it once a while).

I do not see how it would be fair to the bank if the customer decides to have an account with a bank with an agreed minimum average balance, and suddenly withdraws all funds one day and come back 6 months later to say 'do not deduct any charges'.

Although in my bank (a PSB), your account will be auto closed if the balance is zero (even if there are unrecovered charges) for more than 2 years.

Unless this is done, there will be no sense of having a minimum balance condition. the customer would have to just assure that either the balance is above MAB or completely zero
 

TechnoFino

Founder
TF Family
Founder
Admin
I do not see how it would be fair to the bank if the customer decides to have an account with a bank with an agreed minimum average balance, and suddenly withdraws all funds one day and come back 6 months later to say 'do not deduct any charges'.
Banks can freeze their customer's account if they are not maintaining the agreed-upon minimum balance. However, if a bank is holding a negative balance, customers have two options: either close the account or pay the charges and continue. In this scenario, what is the purpose of RBI guidelines?"
Unless this is done, there will be no sense of having a minimum balance condition. the customer would have to just assure that either the balance is above MAB or completely zero
I'm not sure if this is in line with RBI policy, but a bank can freeze someone's account (i.e., make it dormant). However, I'm unsure how a bank can close a customer's account without their consent. For instance, I have a BOI account with a zero balance since 2012. Recently, I called them to reactivate my account. They told me to complete KYC and that I could use the account again.
 

VISHESH_BANSAL

TF Prestige
Just like CC to Bank loopholes exist, and some even do rotation in lakhs just to complete Milestones or Cashbacks

Now Banks find a similar way of charging valid charges without Breaking RBI Guidelines I.e marking hold/lien against the Account to charge the valid charges as per SOC and MITC agreed at the time of Account opening then We have Problems because now bank is earning not the customers.

Axis/HDFC send Low AMB SMS at end of every month if AMB is not maintained.
If even after such intimations we are ignoring it and expecting Banks to waive of the charges or to take action by freezing the Account, then is it Valid ?

Sometimes due to suspicious txns or KYC issues Bank Freeze customer Account without permission then we have Problems due to sudden freeze without permission and now we are expecting Banks to freeze the Account on their own without our permission.


In Case of Axis , Axis even mention if AMB is not maintained then Bank will convert the Account to Basic Saving Account.

Do not have idea on How other Bank works but Axis and HDFC send proper intimations

Account closure without permission by giving invalid reasons is wrong

Note- I am just sharing my thoughts. Do not take it otherwise.
 
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As a banker, I see no issues in the said practice. All such charges as kept under 'unrecovered charges' and will only be recovered if there are funds in the account and the practice is not in violation of the RBI direction. This is the norm across industry, all PSBs follow the practice (some private players do violate it once a while).

I do not see how it would be fair to the bank if the customer decides to have an account with a bank with an agreed minimum average balance, and suddenly withdraws all funds one day and come back 6 months later to say 'do not deduct any charges'.

Although in my bank (a PSB), your account will be auto closed if the balance is zero (even if there are unrecovered charges) for more than 2 years.

Unless this is done, there will be no sense of having a minimum balance condition. the customer would have to just assure that either the balance is above MAB or completely zero
as a fellow banker, i concur. there's a cost involved in maintaining a customer's account, infrastructure etc.Just opening a account and not funding it or allowing it to be dormant leads to opening multiple accounts at will. there's a cost for rendering service and this is how banks recover their cost.
 

sangalaviral

TF Select
VIP Lounge
I somewhat disagree with the banker friends here. RBI guidelines also say that Bank may downgrade the account. Banks are legally obliged to offer at least 1 Zero Balance account within their portfolio of products. If the balance is not maintained or is zero, simply downgrade the account to Zero balance account with intimation to the customer. This is the better way of managing such situations. But since you are banker you are viewing this situation from a skewed perspective. In majority of the cases it is the bank that falls short on their promises and not the customer, yet customer is exploited in each and every situation.

@TechnoFino I had a comparable situation with SC Bank. I was holding a priority relationship with the bank but after several goof ups, I told them I am moving out my funds and they can downgrade me. But they did not and recently, someone sent me some money on Paytm UPI and unfortunately SC account was the default account on it. All of that money was gone from my account.
 
I somewhat disagree with the banker friends here. RBI guidelines also say that Bank may downgrade the account. Banks are legally obliged to offer at least 1 Zero Balance account within their portfolio of products. If the balance is not maintained or is zero, simply downgrade the account to Zero balance account with intimation to the customer. This is the better way of managing such situations. But since you are banker you are viewing this situation from a skewed perspective. In majority of the cases it is the bank that falls short on their promises and not the customer, yet customer is exploited in each and every situation.

@TechnoFino I had a comparable situation with SC Bank. I was holding a priority relationship with the bank but after several goof ups, I told them I am moving out my funds and they can downgrade me. But they did not and recently, someone sent me some money on Paytm UPI and unfortunately SC account was the default account on it. All of that money was gone from my account.
you do have a point. thing is, some customers expect to keep their account at zero balance always and then keep treating it as a normal account. RBI mandated zero balance account have many restrictions. Best thing would be to restrict the maximum number of savings account allowed, as is now the case in case of cash credit and current accounts.
 

TechnoFino

Founder
TF Family
Founder
Admin
Just like CC to Bank loopholes exist, and some even do rotation in lakhs just to complete Milestones or Cashbacks

Now Banks find a similar way of charging valid charges without Breaking RBI Guidelines I.e marking hold/lien against the Account to charge the valid charges as per SOC and MITC agreed at the time of Account opening then We have Problems because now bank is earning not the customers.

Axis/HDFC send Low AMB SMS at end of every month if AMB is not maintained.
If even after such intimations we are ignoring it and expecting Banks to waive of the charges or to take action by freezing the Account, then is it Valid ?

Sometimes due to suspicious txns or KYC issues Bank Freeze customer Account without permission then we have Problems due to sudden freeze without permission and now we are expecting Banks to freeze the Account on their own without our permission.


In Case of Axis , Axis even mention if AMB is not maintained then Bank will convert the Account to Basic Saving Account.

Do not have idea on How other Bank works but Axis and HDFC send proper intimations

Account closure without permission by giving invalid reasons is wrong

Note- I am just sharing my thoughts. Do not take it otherwise.
Then why RBI asking banks to not charge a customer after his/her account balance reach zero. why all banks are not complaining this to RBI for changing the guideline if they have any problem.

note: personal opinion based discussions, no offence.
 

Copycat

TF Ace
VIP Lounge
as a fellow banker, i concur. there's a cost involved in maintaining a customer's account, infrastructure etc.Just opening a account and not funding it or allowing it to be dormant leads to opening multiple accounts at will. there's a cost for rendering service and this is how banks recover their cost.

This is something I've always wanted to ask a banker. What exactly is the cost that you incur in maintaining a) an operational a/c (b) a dormant a/c?


RBI/2014-15/308 DBR.Dir.BC.No.47/13.03.00/2014-15, Point no (vi) "It should be ensured that the balance in the savings account does not turn into negative balance solely on account of levy of charges for non-maintenance of minimum balance."

The banks are strictly following the RBI guideline. The RBI simply asked them not to make the a/c balance negative by levying charges. It did not ask them to stop levying charges. So instead they continue levying charges, and accumulate the said charges in a holding a/c so as to avoid your a/c balance becoming negative
 
This is something I've always wanted to ask a banker. What exactly is the cost that you incur in maintaining a) an operational a/c (b) a dormant a/c?




The banks are strictly following the RBI guideline. The RBI simply asked them not to make the a/c balance negative by levying charges. It did not ask them to stop levying charges. So instead they continue levying charges, and accumulate the said charges in a holding a/c so as to avoid your a/c balance becoming negative
instead of using the word dormant, I should have used "account where there is no balance and no transaction". there's the fixed cost paid to the Fintech provider per account per annum( for eg payment made to Infosys for Finacle, a common banking software). Regular follow up with thousands of such customers for updating their KYC to comply with RBI guidelines etc
 

Copycat

TF Ace
VIP Lounge
instead of using the word dormant, I should have used "account where there is no balance and no transaction". there's the fixed cost paid to the Fintech provider per account per annum( for eg payment made to Infosys for Finacle, a common banking software). Regular follow up with thousands of such customers for updating their KYC to comply with RBI guidelines etc
Thank you for the information. I wasn't aware that banks paid a cost per a/c per annum to the Fintech provider
 

VISHESH_BANSAL

TF Prestige
Then why RBI asking banks to not charge a customer after his/her account balance reach zero. why all banks are not complaining this to RBI for changing the guideline if they have any problem.

note: personal opinion based discussions, no offence.
What I understand as per understanding is:-

1.
RBI never asked Bank to waive off charges or to not recover charges if Account Balance is zero.

2. But RBI asked the Bank

"It should be ensured that the balance in the savings account does not turn into negative balance solely on account of levy of charges for non-maintenance of minimum balance".

Lets take the Example of Axis Bank


Case [A]
MR X maintained the Required AMB in Dec 22 but

In first week of Jan 23 Mr X withdrawn the funds in Cash in multiple txns and Account Balance Becomes zero.

In Jan 23 a cheque got dishonored.

In feb 23 Axis system calculated the charges of MR X for previous month I.e, Jan 23
And debited a consolidated Charge of 1,374 .7 INR by marking a lien in the Account since Account Balance is zero.

This debit entry is not actually reflecting in Account Statement , Hence Actual Account Balance is still zero.

(590 for Cheque Bounce)
(590 for NMC)
(17.7 for SMS of previous Quarter)
(177 for cash Txn beyond free limit).

Now this lien of 1 374.7(negative balance in Layman Language) is valid because this Amount also includes charges other than NMC , not solely NMC.

In March 23 Mr X deposited 5k and the lien Amount got adjusted immediately.

Case

MR X doest not maintain required AMB in Jan 23 and on 31st Jan 22, MR X withdrawn the funds via UPI. Account Balance Becomes Zero.

MR X is smart enough , deactivated the SMS alerts already and neither did or avail any chargeable service in Jan23.

In Feb 23 Axis system Calculated the charges but found only NMC charges is pending for month of Jan23.

Since Account Balance is Zero, and Axis Can not go against RBI Guidelines which states that "balance in the savings account does not turn into negative balance solely on account of levy of charges for non-maintenance of minimum balance"., thus Axis does not mark any lien for NMC in Feb 23 on the name of consolidated charges but in Axis Backend system Charges are still pending.
Account Balance and Effective Balance is still reflecting Zero.

Now MR X deposited 5k in March 23.
Axis system got alert that Account is funded and Next day or same day of Deposit NMC of Jan 23 deducted by Axis.


Here NMC charges are deducted only when Account Balance is 5k not zero.

Conclusion

In case (A) Discussed above , if MR X wants to close the Account in Mar 23 he can approach the Bank, and Bank has full right to ask MR X to clear the lien Amount first and then only Account can be Closed.



in Case (B) Dicussed Above, If MR X wants to close the Account in Mar 23
Banks would not ask MR X to pay NMC of previous Months since there is no lien marked in the Account as per RBI Guidelines and Account will get closed without paying any kind of charges.

RBI issued Guidelines keeping in mind interest of Banks and Customers Both.
 
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TechnoFino

Founder
TF Family
Founder
Admin
What I understand as per understanding is:-

1.
RBI never asked Bank to waive off charges or to not recover charges if Account Balance is zero.

2. But RBI asked the Bank

"It should be ensured that the balance in the savings account does not turn into negative balance solely on account of levy of charges for non-maintenance of minimum balance".

Lets take the Example of Axis Bank


Case [A]
MR X maintained the Required AMB in Dec 22 but

In first week of Jan 23 Mr X withdrawn the funds in Cash in multiple txns and Account Balance Becomes zero.

In Jan 23 a cheque got dishonored.

In feb 23 Axis system calculated the charges of MR X for previous month I.e, Jan 23
And debited a consolidated Charge of 1,374 .7 INR by marking a lien in the Account since Account Balance is zero.

This debit entry is not actually reflecting in Account Statement , Hence Actual Account Balance is still zero.

(590 for Cheque Bounce)
(590 for NMC)
(17.7 for SMS of previous Quarter)
(177 for cash Txn beyond free limit).

Now this lien of 1 374.7(negative balance in Layman Language) is valid because this Amount also includes charges other than NMC , not solely NMC.

In March 23 Mr X deposited 5k and the lien Amount got adjusted immediately.

Case

MR X doest not maintain required AMB in Jan 23 and on 31st Jan 22, MR X withdrawn the funds via UPI. Account Balance Becomes Zero.

MR X is smart enough , deactivated the SMS alerts already and neither did or avail any chargeable service in Jan23.

In Feb 23 Axis system Calculated the charges but found only NMC charges is pending for month of Jan23.

Since Account Balance is Zero, and Axis Can not go against RBI Guidelines which states that "balance in the savings account does not turn into negative balance solely on account of levy of charges for non-maintenance of minimum balance"., thus Axis does not mark any lien for NMC in Feb 23 on the name of consolidated charges but in Axis Backend system Charges are still pending.
Account Balance and Effective Balance is still reflecting Zero.

Now MR X deposited 5k in March 23.
Axis system got alert that Account is funded and Next day or same day of Deposit NMC of Jan 23 deducted by Axis.


Here NMC charges are deducted only when Account Balance is 5k not zero.

Conclusion

In case (A) Discussed above , if MR X wants to close the Account in Mar 23 he can approach the Bank, and Bank has full right to ask MR X to clear the lien Amount first and then only Account can be Closed.



in Case (B) Dicussed Above, If MR X wants to close the Account in Mar 23
Banks would not ask MR X to pay NMC of previous Months since there is no lien marked in the Account as per RBI Guidelines and Account will get closed without paying any kind of charges.

RBI issued Guidelines keeping in mind interest of Banks and Customers Both.
As per my understanding, the RBI has instructed banks not to charge Non-Maintenance Charges (NMC) if a customer's account balance becomes zero, without considering the fact that banks may still charge customers in the form of hold balance.
 
As per my understanding, the RBI has instructed banks not to charge Non-Maintenance Charges (NMC) if a customer's account balance becomes zero, without considering the fact that banks may still charge customers in the form of hold balance.
you are correct, otherwise, what will happen is

  1. Customer receives money in his account
  2. He withdraws the whole amount, as leaving any funds will lead to it being debited due to non maintenance of minimum balance
  3. banks cannot place a hold on any future funds as it will not be allowed
  4. repeats Point 1 and 2
This is going to be the scenario if the bank stops putting a hold on the future receipts in the account.
 

VISHESH_BANSAL

TF Prestige
As per my understanding, the RBI has instructed banks not to charge Non-Maintenance Charges (NMC) if a customer's account balance becomes zero, without considering the fact that banks may still charge customers in the form of hold balance.

If only NMC is pending, then no Bank Hold Balance only for NMC.
BANKS deduct NMC only after Account is funded and that too after few hours or next day of funding not instantly like in the case of Hold/Lien against the Account.

Customer has option Either to close the Account or Fund the Account and Pay NMC to continue the Account.

Only NMC pending case is very Rare. Almost every bank charge SMS charges or debit Card charges or Cash txn charges. Just one more extra service charge other than NMC, bank will hold the Balance including NMC

If any Bank is holding the Balance/marked lien ,only for NMC, then it is against the Current RBI Guidelines but
Since Actual Account Balance is zero that is why RBI may thought Bank has follwed the guideline and then close the complaint. In such a case Banks win, which is wrong as per current guidelines

So yes , A further Clarification should be issued by RBI regarding lien/Hold against Account for NMC and other Service Charges, to make it more transparent.
 
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sangalaviral

TF Select
VIP Lounge
I hope the bankers here do realise that NMC are not the bread and butter of the banks. They are not even the primary source of their income. Why the top banking don't have NMC? Be it imperia, burgundy, icici private, idfc private, Kotak private?
Because they don't have the balls to even mention such a thing.
Only the middle class is being screwed with NMC.
 

akshayhs

TF Ace
The main problem is that I filed a complaint against them with the RBI banking ombudsman and highlighted the grey areas that all banks are using to fool their customers.
Banks don't like these type of complaints because it comes directly from RBI who will light a fire under their bottoms. In that unbearable heat, they have to take actions as per guidelines and that too within 30 days. So I guess AU bank didn't like your approach to RBI when they themselves could actually genuinely solve it.

It's like when we are in childhood and when you don't like someone, we have some kind of grudge on them for no reason if you realize it when you are an adult. It could have been solved amicably but at that time, revenge is more important than anything without realizing the consequences. This is exactly what will happen with the bank because the banks think most customers are dumb. Except that now, people are more educated and can catch them red handed with their pants down and get justice with hardly any efforts.
 
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