Are zero-balance accounts about to become the new normal in banking?

What are BSBD accounts?

BSBD accounts are basic savings bank deposit accounts designed to promote financial inclusion. They require no minimum balance and offer a limited set of services for free. Every bank is mandated to provide such accounts, treating them as a normal banking service. Originally known as no-frills accounts, these were refreshed as BSBD accounts in 2012, to ensure access to banking for low-income individuals who might otherwise remain excluded from the formal financial system.

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Currently, zero-balance account holders can deposit and withdraw cash, receive money electronically, and use passbooks. Banks also provide free debit or ATM cards. However, the services are limited, with only four free withdrawals, including ATM and money transfers, allowed per month. Digital services like UPI, mobile apps, and internet banking are either not universally available or remain restricted. Cheque books are also generally not part of the offering.

This limited bouquet of services made BSBD accounts functional, but not very attractive for active digital banking users.

Why the change now?

The aim is to make BSBD accounts more inclusive, customer-friendly, and digitally empowered, without burdening customers with fees or balance requirements, said RBI governor Sanjay Malhotra. This indicates that the central bank is looking to ensure that even entry-level accounts keep pace with evolving customer needs, wherein customers are able to access services such as UPI transactions considered a basic and integral part of the product suite of any bank.

What do the new norms say?

The draft circular expands the range of free services under BSBD accounts. Mobile and internet banking will be made available by default. Also, these accounts will come with cheque books with at least 25 free leaves per year, unlimited deposits with no cap on the number or value, unlimited free digital transactions including UPI, NEFT, RTGS, and IMPS, ATM/Debit card free of annual fees and four free withdrawals per month at branches or ATMs (excluding digital transactions).

How does a customer benefit?

If implemented, these basic accounts will resemble regular savings accounts, more or less. The key difference: Regular savings customers must maintain minimum balances or pay a penalty, while BSBD account holders don’t. Unlimited free UPI and NEFT payments can encourage cashless transactions. With digital payments becoming easier, it will also encourage more investments, as customers will no longer face the pressure of maintaining a minimum balance amounts.

The additional features also improve accessibility for rural and low-income customers, who rely heavily on cash today, by providing parity with regular accounts through cheque books and digital services. This would also reduce the dependency on public sector banks, as even private banks will be bound to offer BSBD customers these facilities.

For customers, it means enjoying most of the benefits of a savings account without worrying about fees or penalties.

Why is this significant?

Of late, private banks have been chasing premium customers. ICICI Bank recently raised the minimum monthly average balance fivefold to ₹50,000 for new customers, before a backlash forced it to slash it to ₹15,000. Many private banks also offer premium cards and services for customers maintaining high balances.

The RBI move may also change the way banks look at their strategies to attract more deposits. Maintaining low-balance accounts has been weighing heavily on lenders’ pockets due to compliance costs, especially when such accounts are susceptible to rising digital fraud.

“Today, opening a loan account seems safer than opening a deposit account,” State Bank of India chairman C.S. Setty said in August, pointing to issues of erroneous transactions and the use of mule accounts for fraud.

Still, state-owned lenders such as Indian Overseas Bank and Canara Bank have removed many fees and fines to attract mass-market customers in their chase for deposits.

By strengthening BSBD accounts, RBI is sending a clear signal that financial inclusion cannot be compromised in the race for premiumization. The new draft norms ensure that even the most basic account holders are not left behind in India’s fast-moving digitalization drive.