Most banks – private and public alike- charge their customers minimum average balance (MAB) these days. If a customer doesn’t comply with the monthly/quarterly average balance (MAB) rules, then he/she will be charged a penalty.

The RBI mandates that if the customer fails to maintain the minimum balance/average minimum balance, the bank should notify the customer clearly by SMS/ email/ letter etc. that in the event of the minimum balance not being restored in the account within a month from the date of notice, the customer will be charged penal charges.

Other guidelines set in place for levying penalty on non-maintenance of minimum average balance by the RBI are:

· In case the minimum balance is not restored within a reasonable period, which shall not be less than one month from the date of notice of shortfall, penal charges may be recovered under intimation to the account holder.

· The policy on penal charges to be so levied may be decided with the approval of Board of the bank.

· The penal charges should be directly proportionate to the extent of shortfall observed. In other words, the charges should be a fixed percentage levied on the amount of difference between the actual balance maintained and the minimum balance as agreed upon at the time of opening of account. A suitable slab structure for recovery of charges may be finalized.

· It should be ensured that such penal charges are reasonable and not out of line with the average cost of providing the services. 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.

Please note, if a customer has a priority bank account then his/her MAB requirements would be significantly higher than a normal savings bank account. Thus, it is important that one consider the MAB rules carefully.