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State Bank of India (SBI), the bellwether and archetypal public sector bank (PSB), has abolished the minimum balance requirement on savings bank accounts. Till recently, customers with an SBI savings bank account needed to maintain an average monthly balance of ₹3,000 in metro, ₹2,000 in semi-urban and ₹1,000 in rural areas. It levied a penalty of ₹5-15, plus taxes, if these respective amounts were not maintained. The SBI boasts an envious 44.51 crore savings bank accounts, which means roughly one-third of the nation’s population holds savings bank account with the bank.
Simultaneously, it has prescribed a one-size-fits-all savings bank interest rate of 3 per cent per annum from the extant dual rate structure — 3.25 per cent per annum on balance upto ₹1 lakh and just 3 per cent per annum on balance in excess of ₹1 lakh.
Kotak Mahindra Bank’s savings account interest rate is 5 per cent p.a. if the balance in the account is up to ₹1 lakh. For balances between ₹1 lakh-1 crore, it’s 6 per cent per annum; for balances above ₹1 crore, 5.50 per cent per annum. Kotak Mahindra, thus, intelligently woos customers with the carrot of differential rates of interest, without using the stick of minimum balance. The bank lures customers with a higher rate for balance in excess of ₹1 lakh, and then doubles back with a slightly lower rate above that amount lest its fixed deposit schemes suffer.
For the SBI, there is no such hemming and hawing — if you do not want to be condemned to a 3 per cent interest, better put your money in a fixed deposit.
Simultaneously, the SBI has waived off SMS charges levied when an update is sent the customer each time a transaction is done from their savings bank account. One hopes other PSBs follow its lead for such initiatives.
Missed opportunity
The SBI is almost omnipresent across the country. To its loyalists, it is the byname for banking itself, just as LIC is synonymous with life insurance. That is why people haven’t deserted it, despite it steadily reducing the savings interest rate ever since the RBI freed the banks from the condition of 4 per cent per annum.
Private banks like Kotak Mahindra, YES Bank and Bandhan Bank seized that opportunity by wooing customers with a 6 per cent interest, subject to riders. The SBI, on the other hand, has repeatedly sent out signals that higher interest will be available only if you don’t touch your savings account for a while.
Safety first
The recent YES Bank moratorium on withdrawals following its cash crunch has sent a rude message to the public: do not salivate at high rate of savings interest, but rather, look for safety. And safety lies in not putting all eggs in one basket. With the insurance cover for ₹5 lakh being bank-specific, there is safety in numbers for the deposit holder. One should avoid keeping all their savings in one bank.
The SBI’s latest move must be hailed for its transparent decency. It can also take the lead in dismantling its ubiquitous ATMs in cities and towns, which beckon cash-guzzlers. In the US, debit cards are used more for swiping in merchant establishments than at ATMs for withdrawal. In India, it is the other way round. If we are to move toward a digital, less-cash economy, we must make ATMs scarce.
The writer is a Chennai-based chartered accountant
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