Banks in order to sustain their deposits at some minimum levels suggest savings bank account holder to maintain some amount of minimum monthly average balance. And, failing it a hefty penalty is charged to bank customers.
Another point to note here is that such minimal balance is asked for by banks as managing an account involves a cost which the bank has to bear as human and other operational cost. And the parameter is arrived at or computed in order to compute the interest payable to bank account holders and charges chargeable as penalty in case of any default.
Understanding calculation of MAB
Herein banks take into account the addition of the closing balance as on end of each day and divides it by the number of days in a month.
Illustration to understand MAB computation: Here we have assumed that the bank has a call to maintain minimum average balance of Rs. 10000 and the month has 31 days.
|Days||Total days||Amount in S/B A/c as on EOD||Average Balance|
|First 5 days||5||5000||25000|
|6th to 10th day||5||12000||60000|
|11th to 20th day||10||7000||70000|
|21st to 24th day||4||9000||36000|
|25th to 28th day||4||15000||60000|
Average balance -Total of every day balance as on end of day/ Total number of days
=2,51,000/ 28 = Rs. 8964.286. This is less than the minimum balance requirement of Rs. 10,000 for a month and hence the same would go higher. For the remaining 3 days, the amount to be maintained can be computed as below:
(MAB requirement * remaining days- average balance maintained in the earlier days)/ total number of remaining days in a month
= 10000*3- 2,51,000/3 =Rs. 19,667 needs to be now maintained to satisfy the MAB clause of the banks.
So, while a laymen may have the say that keeping a minimum balance of Rs. 10,000 as on the last working day of the month will satisfy the rule, the calculation is not that easy.
Further, as a simple practice this provision by the bank can be adhered to as following: say the bank has a minimum average balance requirement of Rs. 5000, you can do it either by maintaining the same amount of Rs. 5000 as the closing balance as on each day or by maintaining 1,50,000 as a whole. This largely means the same.