No-frills account: RBI to the rescue of common man

By Jay Sri | 25 Oct 2005

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Fed up of the umpteen regulations thrust on you by banks when you want to open an account? Burdened by the stipulation of high minimum balance conditionality? Wait, the Reserve Bank of India has stepped in bring you a level the playing field for customers.

In its for the year 2005-06 (popularly referred to as the credit policy), released today, the Reserve Bank of India has called upon banks to come out with a 'no frills' account - accounts with no pre-conditions, so that the common man would not hesitate to have a bank account.

RBI had earlier indicated its thinking on the subject in its April annual policy statement this year. The April statement, then, had expressed concerns about banking practices that tend to exclude a sizeable section of the population from the country's banking system. The mid-term review announced earlier today tends to correct this exclusion by giving a directional programme to bankers.

Revealing the policy statement, Dr Y Venugopal Reddy, governor, RBI, stated, "With a view to achieving greater financial inclusion, all banks needed to make available a basic banking 'no frills' account either with 'nil' or very low minimum balances as well as charges that would make such accounts accessible to vast sections of population."

Currently, banks require an opening balance of between Rs1,000 and Rs5,000 for a savings bank account with them. The current direction from the Reserve Bank should do away with this stipulation or to expect the least, bring it to very nominal levels.

Few banks had earlier come out with attractive propositions like 'zero balance' accounts. But, just as a catchy advertisement tends to cover more than it reveals, zero balance accounts also concealed more than they revealed.

Had one opted for a zero balance account, one would have been shocked later to discover that the fine print stipulates that the zero balance facility is available only at the time of opening the account - a fact not revealed to the unsuspecting account-holder. Once the account becomes operational, say as and when credit is made into the account, the minimum balance stipulation automatically comes into force.

From then onwards, whenever the balance in the account drops below the bank's stipulated minimum balance, a penal charge known as "minimum balance charge" is levied on the hapless account-holder. These penal charges are levied either on a daily basis or consolidated in to a monthly or quarterly charge.

The recent credit policy hopes to end such gimmicks; it advises bankers to devise a no-frills' account and has also advised the banks to "give wide publicity to the facility of such a 'no-frills' account so as to ensure greater financial inclusion" of the vast sections of the population.

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