One step forward, two steps back—that’s how depositor protection feels at the Reserve Bank of India (RBI) under its 26th governor, Sanjay Malhotra. While financial inclusion is a government objective, millions of depositors remain trapped between progressive policy promises and the reality of an entrenched central bank bureaucracy that refuses to engage with or understand ordinary depositors’ issues adequately.
Consider this series of facts, right up to the two big developments last week. First, RBI surprised us with a hugely positive draft circular simplifying transmission of assets of deceased depositors, introducing long overdue standard operation procedures (SOPs), specific forms for deposit transfer and, most importantly, prescribing penalties for failure to transmit assets within 15 days.
Within days after this circular was notified, governor Malhotra distanced RBI from ICICI Bank’s plan to deal with wealthier customers only (it has imposed Rs50,000 minimum balance on new savings accounts). ICICI Bank’s exclusionary action is bound to be emulated by other private banks and has implications for financial inclusion as well. Instead of encouraging a broader public discussion, the governor washed his hands off the issue, ironically enough, while speaking on the sidelines of a ‘Financial Inclusion Saturation Drive’ event in Gujarat.
Chronology of Actions
Let’s start with a quick chronology of RBI’s contradictory actions. On 17th March, the governor had delivered a hard-hitting speech that dwelt on rising consumer complaints and their deliberate mis-classification by banks; he also indicated that even a single complaint is unacceptable raising expectations of a pro-customer shift by the banking regulator. (Read: Will RBI Governor’s Tough Talk on Consumer Complaints Lead to Real Change?)
Then, in June, RBI issued a draft circular proposing to simplify know-your-customer (KYC) procedures and reduce harassment after long and repeated pleas by advocacy groups such as Moneylife Foundation. This was a good two years after RBI’s Kanungo committee (for review of consumer service standards) had categorically said that banks had no right to freeze bank accounts for KYC-updation delays. The committee had also recommended simplified procedures and digital traceability of customer communications.
And yet, RBI merely tinkered with the rules for the 16th time without much change. What is worse, the final circular diluted the draft provisions and dropped its single most important proposal– a one-year breather (or until June 2026) from coercive freezing of accounts for low-risk accounts whose KYC update is overdue.
But this negative was followed by the positive surprise on transmission of assets.
Landmark Reform
In early August 2025, RBI released a draft circular titled, RBI (Settlement of Claims in respect of Deceased Customers of Banks) Directions, 2025, which promises transformative changes for legal heirs and nominees of deceased depositors. The new rules will mandate banks to settle claims related to deposit accounts and safe-deposit lockers within 15 days of receiving a valid claim from January 2026. Failure to comply would attract stiff penalties: for deposits, interest at bank rate plus 4% per annum; for lockers a compensation of Rs5,000 per day.
Importantly, the draft guideline finally proposes SOPs and prescribes specific forms for application, indemnity etc. It also attempts to fix issues such as dealing with money credited to accounts after the depositor’s death, premature closure of fixed deposits (FDs) on death and dealing with missing persons’ funds and encourages banks to accept online claims processing.
If implemented, this will finally prevent bankers from making unreasonable demands for the release of assets to legal heirs. Since RBI has sought public feedback (until 27th August), banks are bound to lobby against the strict timelines and penal provisions; so it remains to be seen if governor Malhotra stands firm or allows dilution. (Read: Banks May Face Penalties for Delays in Settling Claims of Deceased Customers from January 2026)
Let’s not forget that the Securities and Exchange Board of India (SEBI) has already implemented similar proposals which are being tested in terms of implementation and efficacy. If anything, RBI can further strengthen this framework to:
a)Ensure that penalties for delay are enforced and paid by setting up an online monitoring and reporting mechanism. If complaints cross a certain threshold, it should lead to escalated action.
b)Adopt a centralised death reporting mechanism or share the infrastructure introduced by SEBI in October 2023. Once the death certificates and PAN details are uploaded and verified centrally, all banks where the deceased has an account, credit cards and other RBI-regulated services should verify and validate information without the need for legal heirs to submit repeated documents.
c)Once a death is reported, it should automatically trigger follow-up action with regard to credits, payment demands, etc, because bereaved heirs may need some time for completion of rituals and formalities before they begin to sort out transmittal issues.
Far from diluting a landmark framework, there is scope to improve it and make it more credible. Even as we were applauding this long-delayed move, RBI has taken a step back on the minimum balance issue.
Minimum Balance Consequences
On 11th August, governor Malhotra reportedly said, “The RBI has left it to individual banks to decide on what minimum balance they want to set. Some banks have kept it at Rs10,000, some have kept Rs2,000, and some have exempted customers. It is not in the regulatory domain (of RBI).”
This was immediately after ICICI Bank announced a 5-fold hike in minimum balance requirement for new accounts to Rs50,000 for urban branches (up from Rs10,000) and Rs25,000 for rural branches (up from Rs5,000). ICICI Bank’s decision to restrict its services to the creamy layer of society is likely to be adopted by others as well.
But remember, banks were allowed to set minimum balance limits as part of economic liberalisation, when it was assumed that new private banks looking to grow business would be more customer-friendly. That was the time when private banks lobbied hard and bagged government and pension accounts, which were restricted to nationalised banks. Now that they have achieved a dominant size and reach, these banks want to turn exclusionary. How fair is this? Does it not mark a sharp turn in India's financial inclusion narrative with real consequences? It is also an example of how growing wealth disparity continues to affect people.
Cascading Impact
Our nationalised banks – merged and cleaned up at the cost of the exchequer – could also seek to weed out less lucrative customers. Let’s not forget that all banks – private and nationalised -- have already been allowed to gouge significant sums of money from poorer depositors who failed to maintain AMBs. In August 2023, the finance ministry told Parliament that banks had collected a whopping Rs35,587.68 crore from customers since 2018 on this count (Read: Banks Collected over Rs35,500 Crore from Customers for Not Maintaining Minimum Balance, Additional ATM Transactions and SMS Services: Govt).
The huge number also reveals the economic profile of bank customers, who will be excluded by banks adopting higher AMB requirements. And yet, savings accounts, which earn a negligible 2% interest, account for 30% of CASA (current account-savings account) balances. This effectively means that the poor depositors are the ones subsidising benefits offered to richer customers.
Customers who can't meet high balance limits will slowly be driven to smaller, less secure banks, or even forced out of the formal banking system. At present, a few public sector banks (PSBs) do not levy any charges for non-maintenance of minimum balance in savings accounts although it remains uncertain how long this policy will continue. How does this square with the Banking Regulation Act's repeated assertion about the duty to safeguard depositors' interest? RBI does not even think any of it merits a broader discussion.
At the very least, the government should exclude banks, which want to restrict business to the creamy layer from government accounts and businesses; similarly, nationalised banks, cleaned up at public expense, should not be allowed to have exclusionary AMB rules either.
As India’s banking sector grows in complexity and profit, the lived reality of the average customer remains unchanged – it will remain at the mercy of the RBI bureaucracy, because disaggregated customers are unable to hold the regulator accountable.
UPDATE: After this column was published, ICICI Bank on Wednesday evening decided to reduce its newly introduced minimum average balance for new urban savings accounts from Rs50,000 to Rs15,000 after public backlash, but the revised limit remains 50% higher than the earlier Rs10,000 requirement.
The announcement by ICICI Bank came hours after HDFC Bank also revised its MAB requirements. Effective 1 August 2025, new customers of HDFC Bank in metro and urban areas must maintain a Rs25,000 MAB, with penalties set at 6% of the shortfall or Rs600, whichever is lower.
Recently a US based couple have filed FIR against Indusind bank CEO for encashing 4.36 crores fixed deposits and diverting the money. The reports says repeated attempts to get help from RBI failed.
RBI should take proactive action when customers are cheated by bank itself and the trust of banking system itself is questioned.
https://timesofindia.indiatimes.com/city/chennai/indusind-bank-officials-booked-for-fixed-deposit-fraud-nri-couple-lose-rs-4-3-crore/articleshow/123679699.cms
under the present rbi governor I do not see rbi looking holistically into the issues facing the common man an.d is leaving it to the banks to do what they want and this is how all the loan scams and etc happens and good to see public sector banks themselves have reduced the amb like canarabank on their own without waiting for the rbi governor whereas banks like icici banks looks like were waiting for the rbi governor to spell out.Rbi should come out openly and say that for sr citizens etc there should not be any amb in any bank be it private or psb.
There is a merit in this narrative "That was the time when private banks lobbied hard and bagged government and pension accounts, which were restricted to nationalised banks. Now that they have achieved a dominant size and reach, these banks want to turn exclusionary".
Not acceptable stance by RBI.
Great irony. In his speech Mr. Malhotra indirectly supported ICICI Bank's stand to raise the minimum balance. In the same speech he referred how some public sector banks have removed minimum balance charges. What is his exact stand? Government is insisting on financial inclusion with PMJDY. RBI has issued directions on 'no-frill' accounts as well as Basic Savings Bank Deposit Accounts. Do these directions hold any value or weight now? Are we moving away from financial inclusion to financial exclusion? Many times the RBI has given somewhat free hand to banks directing them to chalk out 'Board Policy' on various issues. Whether this is being misused?
About FDs, on death of any of the depositor the other holder/s should have right to decide whether to continue or take premature payment.
Claims should not be rejected just because there is some difference in the spelling appearing on the account opening form and the PAN or aadhar.
One more point is RBI circular on unauthorized digital transactions. The circular should clearly mentioned how banks should investigate the origin of such transactions.
The Integrated Ombudsman should conduct proper hearing, online or physical, between the bank and the aggrieved consumer. It should not just depend upon the feedback from the bank and pass on the same 'as it is' to the complainant.
Any instance, any bank has done this
"About FDs, on death of any of the depositor the other holder/s should have right to decide whether to continue or take premature payment.
"Claims should not be rejected just because there is some difference in the spelling appearing on the account opening form and the PAN or aadhar.". In my FD with HSBC, the bank has itself shortened my name and my wife's name and is not matching aadhar and pan. Should i be worried?
Neither Consumer Protection nor any lip service intended intentionally seem to be the approach from the experience of customers and Consumers in respect of services or availability of essential commodities at affordable prices. Middle and lower middle class are always taken for an easy ride and the reason is they come under traceable category easily. Even lower middle class feel the pinch of market pressures with the gradual increase of service charges and charges for even payments and settlements through banks. The hike of minimum Balance is a classic example as to how the so called middle class masses can be eliminated from the class banking when the trend is made to be believed otherwise by removing the minimum balance requirements by PSBs and some others. Expectation of acha din is becoming a bad dream in reality and proving to be correct to the observation that realisation and experience is the mother of realisation.
Fiercely independent and pro-consumer information on personal finance.
1-year online access to the magazine articles published during the subscription period.
Access is given for all articles published during the week (starting Monday) your subscription starts. For example, if you subscribe on Wednesday, you will have access to articles uploaded from Monday of that week.
This means access to other articles (outside the subscription period) are not included.
Articles outside the subscription period can be bought separately for a small price per article.
Fiercely independent and pro-consumer information on personal finance.
30-day online access to the magazine articles published during the subscription period.
Access is given for all articles published during the week (starting Monday) your subscription starts. For example, if you subscribe on Wednesday, you will have access to articles uploaded from Monday of that week.
This means access to other articles (outside the subscription period) are not included.
Articles outside the subscription period can be bought separately for a small price per article.
Fiercely independent and pro-consumer information on personal finance.
Complete access to Moneylife archives since inception ( till the date of your subscription )
RBI should take proactive action when customers are cheated by bank itself and the trust of banking system itself is questioned.
https://timesofindia.indiatimes.com/city/chennai/indusind-bank-officials-booked-for-fixed-deposit-fraud-nri-couple-lose-rs-4-3-crore/articleshow/123679699.cms
Not acceptable stance by RBI.
About FDs, on death of any of the depositor the other holder/s should have right to decide whether to continue or take premature payment.
Claims should not be rejected just because there is some difference in the spelling appearing on the account opening form and the PAN or aadhar.
One more point is RBI circular on unauthorized digital transactions. The circular should clearly mentioned how banks should investigate the origin of such transactions.
The Integrated Ombudsman should conduct proper hearing, online or physical, between the bank and the aggrieved consumer. It should not just depend upon the feedback from the bank and pass on the same 'as it is' to the complainant.
"About FDs, on death of any of the depositor the other holder/s should have right to decide whether to continue or take premature payment.
"Claims should not be rejected just because there is some difference in the spelling appearing on the account opening form and the PAN or aadhar.". In my FD with HSBC, the bank has itself shortened my name and my wife's name and is not matching aadhar and pan. Should i be worried?