Indian Bank and PNB Waive Minimum Balance Charges to Promote Financial Inclusion

In a move that will impact millions of customers across India, Indian Bank and Punjab National Bank (PNB) have announced the waiver of minimum balance charges on all savings accounts. This significant decision underscores both banks’ commitment to financial inclusion, aiming to make formal banking more accessible and affordable for all sections of society.

Effective July 1, 2025, PNB stopped charging penal fees for non-maintenance of minimum average balance (MAB) in any savings account. Indian Bank’s waiver will come into force on July 7, 2025, applying across all of its savings bank customers.

Aimed at Financial Inclusion

Indian Bank, in its statement, said the waiver is meant to foster financial inclusion and remove barriers that prevent people—especially those from economically weaker sections—from participating in the formal banking system.

For many, especially in rural areas, the requirement to maintain a minimum average balance has been a significant deterrent to keeping bank accounts active. Students, senior citizens, daily wage earners, small business owners, and low-income households often find such requirements burdensome, leading them to either close accounts or avoid opening them altogether.

Indian Bank's Managing Director and CEO highlighted the bank’s vision of inclusive growth, stating that "removing minimum balance charges is a step toward a more accessible banking ecosystem that serves all communities equally."

Punjab National Bank’s Customer-Focused Approach

Punjab National Bank (PNB), one of India’s largest public sector banks, echoed this approach. Effective July 1, the bank removed penal charges on all savings accounts for non-maintenance of minimum average balance.

In its announcement, PNB emphasised that this step aims to benefit priority segments of society, particularly:

• Women who manage household finances

• Farmers and rural customers with seasonal income

• Low-income households that may struggle with balance maintenance

PNB’s MD and CEO Ashok Chandra explained, "Waiving these charges will ease financial pressure on customers and encourage greater participation in the formal banking ecosystem."

By making banking easier and more affordable, PNB hopes to help customers build financial security, avail government welfare transfers, and gain access to credit facilities more seamlessly.

Reduction in Loan Rates by Indian Bank

Alongside this customer-friendly move, Indian Bank also announced a reduction in its one-year Marginal Cost of Funds-Based Lending Rate (MCLR) by 5 basis points, bringing it down to 9% effective July 3, 2025.

This reduction in MCLR is significant because:

• Loan EMIs will become cheaper for customers borrowing on MCLR-linked rates.

• It supports small businesses, housing loan customers, and personal loan seekers by reducing interest costs.

• It reflects the bank’s commitment to support credit growth, especially in priority and underserved sectors.

The move aligns with broader efforts by Indian banks to pass on monetary policy benefits to customers and boost economic activity.

The Problem with Minimum Balance Charges

Minimum Average Balance (MAB) requirements have long been a contentious issue in Indian banking. While they help banks cover operational costs and ensure account activity, they disproportionately burden:

• Rural and low-income customers who may face income variability

• Students without regular income

• Senior citizens relying on limited pensions

Failure to maintain the required balance often attracts penal charges, leading to loss of trust in banks, closure of dormant accounts, or even avoidance of formal banking channels altogether.

By waiving these charges, Indian Bank and PNB remove a key barrier to banking inclusion, supporting RBI and Government of India’s goals to achieve universal banking access.

Supporting Government’s Financial Inclusion Agenda

These decisions align closely with the Government of India’s vision of financial inclusion articulated through programs such as:

• Pradhan Mantri Jan Dhan Yojana (PMJDY), which has added over 50 crore bank accounts since 2014

• Direct Benefit Transfers (DBT), which rely on active bank accounts for delivering subsidies and welfare payments

• Digital India, aiming for wider adoption of cashless payments and banking access even in remote areas

Removing MAB penalties will encourage marginalised and unbanked populations to open and maintain accounts, ensuring they can receive government benefits and participate in the formal economy.

Potential Impact on the Banking Sector

While the decision is highly customer-friendly, it does have operational implications for banks:

• Revenue Impact: Banks have historically earned significant non-interest income through penalties on non-maintenance of MAB. Waiving this income source requires banks to strengthen alternate revenue streams.

• Cost of Servicing Accounts: As more accounts remain active—even with lower balances—banks must bear costs of maintaining those accounts, including IT infrastructure, manpower, and security.

• Competitive Pressure: Other banks may follow suit to remain competitive, especially in a landscape where customers can easily switch banks for better terms.

Yet, both Indian Bank and PNB see these trade-offs as necessary investments in long-term customer trust and market share expansion.

Customer Benefits in Detail

The benefits to customers are clear and substantial:

• Zero penalty risk for low balances

• Greater financial flexibility for low-income households

• Ease of mind for students, senior citizens, and rural workers

• Encouragement for saving habits without fear of penalties

• Improved access to credit and financial products by staying within the formal banking system

Broader Industry Context

Indian Bank and PNB’s moves come amid broader trends in the Indian banking sector:

• Digital transformation reducing operational costs

• RBI’s push for customer-friendly practices, including simplified KYC norms and zero-balance accounts

• Growing competition from neo-banks and fintech apps offering no-fee accounts and digital-first experiences

Public sector banks, traditionally seen as conservative, are modernising and adopting customer-centric policies to remain competitive.

The Way Forward

Experts suggest that while waiving MAB charges is a big step, banks must also:

• Educate customers on using accounts actively and safely

• Promote digital banking to reduce servicing costs

• Offer financial literacy programs to encourage savings and responsible borrowing

• Innovate in micro-loans and small-ticket products for new account holders

Financial inclusion is not just about opening accounts but ensuring they are used meaningfully to improve livelihoods and economic stability.

Conclusion

Indian Bank and Punjab National Bank have taken a landmark step by waiving minimum balance charges for all savings account holders. This move is expected to benefit millions, especially those traditionally excluded from formal banking due to cost barriers.

Coupled with Indian Bank’s MCLR cut, these measures will reduce costs for borrowers, boost financial inclusion, and strengthen trust in India’s banking system.

As India strives to ensure banking for all, such customer-friendly policies demonstrate how public sector banks can lead the way in transforming the financial landscape into one that is inclusive, accessible, and equitable for every citizen.

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