Average Monthly Balance (AMB), also known as Account Maintenance Charges, are taken by banks from the account holders who fail to maintain a specified average balance in their accounts. Every bank sets a minimum balance requirement that account holders need to maintain. With regard to this, the introduction of GST in many nations like India has had a major impact on varied financial transactions.
So, let’s explore the varied aspects of AMB charges, keeping Indian customers in mind, like, AMB charges meaning, etc.
What is AMB Charges?
Average Monthly Balance (AMB) charges are fees banks charge customers if they don’t maintain a minimum balance in their savings or current accounts. Essentially, banks expect customers to keep a certain amount of money in their accounts each month.
If the average balance falls below this specific amount, the bank imposes AMB charges. However, these charges vary between banks and account types. Consequently, account holders must know their bank’s AMB requirements to avoid incurring these additional fees. Being mindful of your account balance regularly can help you steer clear of these charges.
Why do Banks Enforce AMB Charges?
Banks levy Average Monthly Balance needs for various reasons, aiming to maintain operational efficiency and to offer quality services to customers. Here’s why banks enforce AMB non maintenance charges: –
1. Operational Costs
Banks incur operational costs to maintain customer accounts, offer the best services, and manage all the important transactions. Additionally, AMB helps cover these expenses to ensure banks can continue to function efficiently.
2. Customer Services
Sufficient funds in bank accounts allow varied financial institutions to offer various customer services, like checkbooks, debit cards, and online banking facilities, efficiently. AMB ensures customers have access to these services without any interference.
3. Risk Mitigation
Maintaining a minimum balance helps banks mitigate risks associated with all unpaid loans and overdrafts. However, it ensures bank customers have a financial cushion, reducing the likelihood of overdrawing their accounts.
4. Interest Rate Calculation
Banks often calculate interest rates on savings accounts based on the average balance. AMB helps determine the interest accrued on deposits, benefiting customers with higher balances.
5. Sustainable Banking
By enforcing AMB, banks can sustain themselves financially, invest in technology, and expand their services, ultimately benefiting the bank and its customers.
6. Avoiding Penalties
Regularly maintaining the minimum balance helps customers avoid penalties and extra charges imposed for falling below the required limit.
RBI Guidelines Related to Deduction of AMB Charges By The Banks
1. Transparency
Banks must be transparent about the AMB’s needs, keeping their esteemed customers in mind. That means while opening an account, banks must inform their customers about the minimum balance criteria and applicable charges if the average balance goes below. However, this information is typically provided in the account opening documents and displayed on the bank’s website.
2. Reasonable Charges
The RBI guidelines emphasize that the AMB charges imposed by banks should be reasonable and affordable to customers. On top of that, banks are expected to consider the interests of their customers while determining these charges.
3. Notification
Banks must notify customers well in advance regarding any changes in AMB requirements and charges. However, this ensures that customers are aware of the modifications and can adjust their banking behavior accordingly.
4. Waiver for Certain Accounts
Some categories of accounts, such as Basic Savings Accounts and accounts belonging to certain financial inclusion schemes, are often exempt from AMB requirements. The RBI ensures these exemptions are in place to promote financial inclusion and ply to the banking needs of various sections of society.
5. No Arbitrary Deductions
Banks are prohibited from making arbitrary deductions from customers’ accounts. Any charges levied must align with the guidelines specified by the RBI, and deviations from these guidelines are not permitted.
6. Customer Grievance Redressal
The RBI mandates that banks establish a robust grievance redressal mechanism. Suppose customers have any complaints or issues related to AMB charges. In that case, they can approach the bank’s grievance cell or the Banking Ombudsman, an independent body set up by the RBI to resolve customer complaints against banks.
Taxation of AMB Charges Under GST
As per CGST law, Average monthly charges taken by banks are treated as services offered to customers and are subject to a GST of 18%. That means when a bank deducts money from the account of their customers for not maintaining a particular monthly balance, it includes both the AMB charges and GST.
So, regarding this, customers must know that the amount that is deducted from their account for not meeting the minimum balance includes not only the AMB fees but also the GST imposed by the government. It’s essential to keep track of these charges to manage finances effectively.
The Bottom Line
It is essential to understand the AMB charges mean that are levied by the banks for every account holder. However, by staying up-to-date about the minimum balance needs, GST rates, and not the least actively managing their accounts, individuals can easily navigate the banking world.
So, be proactive and experience a hassle-free banking experience.
Frequently Asked Questions.
1. How is Average Monthly Balance calculated?
It is calculated with the help of a simple formula- Total of the closing balances for one month divided by total number of days in a month. Or AMB= Sum of closing balances/ number of days in one month.
2. How much GST is charged by the banks?
As per the rule 18% tax is applied on the bank services.
3. What do you understand by AMB charges?
Average Monthly Charges is the minimum amount account holders have to keep in their savings or current account. However, it is the least amount that account holders need to maintain in account that helps them to avoid AMB charges.