ICICI Bank’s sharp hike in minimum balance for savings accounts can raise margins and brows

ICICI Bank upping the minimum balance requirement for new savings accounts to ₹50,000 from ₹10,000 earlier indicates a change in the strategy of the bank. To lean on an old cliché, ICICI has apparently decided to be a bank for the classes, not for the masses.

In sharp contrast, public sector banks have very modest minimum balance requirements, if that. In 2017, SBI had announced that it was raising the minimum balance requirement to ₹5,000. The move created an uproar and the bank withdrew the rule, nudged by the department of financial services. Since then, the DFS has been prevailing upon most PSU banks to have modest or even nil minimum balance requirements, to ensure lower income groups are able to use banking services.

Private banks have always been demanding higher minimum balance requirements; the highest so far has been ₹10,000, which was the limit in ICICI as well, until last month. Many private banks offer special savings accounts with higher minimum balance requirements, but with added benefits like insurance, trading account, club benefits, etc.

However, so far all private banks have retained the regular savings account with a lower minimum balance requirement. But with ICICI Bank now upping the ante, one needs to see if other banks like HDFC and Axis follow suit. Clearly, Kotak Bank won’t be doing so, going by the public comment of Jay Kotak, a top executive in the bank.

The move to up the balance has probably been prompted by the recent pressure on bank margins and by the flight of savers from bank fixed deposits products to mutual funds. Technology costs of banks are also rising with each passing day. Maintaining a savings account and offering services like pass books, debit cards, etc, are a cost for banks, and with the pressure on margins, banks would rather offer such services to larger accounts than to millions of small accounts.

Yes, all banks have to offer a basic savings or no-frills account, per RBI rules, and ICICI offers them too. But this is for genuinely small savers whose total credits in a year cannot exceed ₹1 lakh. These accounts are not for the regular middle class saver.

With its hike in the minimum required balance, ICICI is clearly indicating its preference to serve only the more well-off customers. To put it simply, ICICI now positions itself like the Titan Company serving those who can afford gold, rather than a Tata Consumer company that serves those who need salt and tea.

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It will be interesting to see how the regulator RBI reacts. Clearly, the bank hasn’t broken any rule. The RBI has not prescribed any cap on the minimum balance for savings accounts. And ICICI, as per sources, is applying the new higher minimum balance only to prospective accounts and not to the existing ones.

Still, the regulator can argue that banking is a utility and cannot be run like an elite business. The regulator can also quote the master directions which say bank charges should be reasonable and commensurate with the cost of rendering such service. The RBI has hardly ever taken recourse to this direction and interfered with the commercial decisions of banks. May be, RBI will watch to see if other banks follow suit, or may be just choose moral suasion.