Let this headline sink in.

According to information obtained through an RTI filed in 2017, SBI had received Rs235 crore in fines from 3.89 crore normal savings accounts for failing to maintain a monthly average balance. This is from a PSU which has a far lower minimum balance requirement in comparison to most private sector banks in India. Imagine the combined amount earned by all banks for account holders breaching the minimum balance limit.

How can you be certain that you aren’t losing your hard-earned money due to carelessness? We answer these questions here: What is minimum balance requirement or MAB and how is it calculated?

What is MAB or Monthly Average Balance?

There is a fee associated with managing your bank account. For this reason, keeping your account balance at a minimum average is important. Furthermore, a penalty fee is associated with failure to comply with the requirement of minimum funds in your account; it is used to offset or compensate for the cost of the bank’s day-to-day operations.

How is the monthly average balance calculated by a bank?

Most people are unable to grasp the fundamental mathematics underlying this MAB concept. They believe that to avoid penalties from banks against MAB, you must have the required amount in your bank each day. This is not precise. “Monthly Average Balance” is calculated by adding up all End of Day (EOD) balances and dividing that amount by the number of days in the month. The concept of MAB is related to the idea of average. The formula below determines the average daily balances at the end of each day.

Banks use the formula: MAB = (total of end-of-the-day closing balances) / (number of days in one month) to calculate the MAB of an account holder.


Assuming a bank asks that you maintain Rs 10,000 as your average monthly balance:

On 1st Jan, the balance in your account is Rs 12,000.

On 7th Jan, you withdrew Rs 5,000. Your EOD balance is Rs 7,000.

On 15th Jan, you deposited Rs 7,000. EOD balance is Rs 14,000.

Summing up the EOD balances:

For 6 days from 1st to 7th Jan, the sum of EOD balance will be Rs (12000*6) = Rs 72,000

For 9 days from 7th to 15th Jan, the sum of EOD balances will be Rs (7000*9) = Rs 63,000

For 16 days from 15 to 31 Jan, the sum of EOD balances will be Rs (14,000*16) = Rs 2,24,000.

Sum of all the EOD closing balances = Rs 3,59,000

Total number of days in January = 31
So, the minimum average balance will be 3,59,000/31, i.e., Rs 11,580/

Therefore, the MAB is calculated by a sum of the daily closing balances for the entire month and then dividing that result by the total number of days in that particular month. Keep in mind that the number of days total, including weekends and holidays, is considered here.

Myth: The monthly average balance is frequently misinterpreted as the bank’s method of regulating your spending and as a means of imposing fines if you don’t comply. This is, however, far from the truth. So then,

Why do banks enforce minimum balance requirements?

The funds that account holders deposit are used by banks for a variety of purposes. The bank makes sure that a sizable amount of cash is always on hand at the bank for use in a variety of investment avenues by urging account holders to maintain a minimum balance in their accounts.

What are the repercussions of failing to maintain a monthly average balance?
Failure to maintain the minimum balance may result in penalties. There is no cap on the fines that a bank can impose for failing to maintain the minimum balance. The board of directors of the bank must approve the fees. The fees can differ from bank to bank and from branch to branch too.

Additionally, for banks, determining the account holder’s steady income depends critically on the average monthly balance. Failure to maintain the average monthly balance on time may indicate that the account holder has erratic income or unpredictable spending habits. When that happens, it impacts the credit score of the account holder, which further impacts the customer’s prospects of availing of loans in times of need.

Can I get rid of MAB charges?

You can open a zero balance account by completing the know your customer (KYC) formalities. The most significant advantage of such accounts is that there is no need to maintain a minimum balance. Most banks offer zero balance accounts, which require a zero MAB on a monthly and quarterly basis.

Charges by Top Indian Banks:

SBI – For SBI account holders in rural areas, an average minimum balance (AMB) of Rs. 1000 per month, Rs. 2000 in semi-urban areas, and an AMB of Rs. 3000 in the metropolis.

HDFC – For urban, semi-urban, and rural branches of HDFC Bank, the minimum average balance requirements are Rs 10,000, Rs 5000, and Rs 2500, respectively. A penalty of between Rs. 600 and Rs. 150 is imposed on you by the bank if the balance falls below the required level.

ICICI – The MAB requirements for an ICICI Regular Savings Bank Account are Rs 10,000, Rs 5,000, Rs 2000, and Rs 1000 for metro, urban, semi-urban, rural, and gramin locations, respectively. If the balance falls below the monthly average balance, a penalty of 6% of the shortfall or Rs. 500, whichever is less, is assessed.

Note: The minimum requirements for NRIs and other special accounts, like a current account may vary depending on the bank and the type of account held.

To Summarize:

  • Although maintaining a minimum average balance (MAB) in a savings account is crucial, many people fail to do so.
  • Living in a metropolis or a semi-urban area also impacts MAB and penalty fees.
  • There is no cap on the penalty’s maximum amount, and banks occasionally impose 100% penalties.