ICICI raises Quarterly Average Balance (QAB). What is QAB?

Ok, so writers are not the best paid guys around. That fact was brought to my notice recently when I got a letter from ICICI saying that from July 1 onwards I need to maintain a Quarterly Average Balance of Rs. 10,000. And if I didn't, there were penalties in store and they wouldn't mind losing me as a customer.

Do they mean what they say? If I go by past experiences, then I'm quite convinced that they mean what they say. So either I pay up or I close my account and the demat and the trading etc. associated with it. So much for "Kahayal Apka" - as their advertisement baseline goes.

Any way. That's my problem and I'll have to make a decision on it.

The interesting question was what QAB meant? The letter assumed that I knew what it was. There was no explanation of how it worked or why the amount was Rs. 10,000. (I mean, why not Rs. 7,000 or Rs. 8,000. What was the mathematical explanation for it?) But more importantly, it didn't tell me how this thing got calculated!

I know what most people would do in such a situation: Just keep Rs. 10,000 in the savings account and let ICICI keep it as a fixed deposit (even though you earn only saving rate interest on it!) But is that possible for everyone? What if you had to scrape the bottom and not leave much in the account? How will the QAB get caclulated in that case. So probably this is a good time to understand what QAB is.

Let's take the example of a statement for the last quarter: April-May-June
(Assume you had Rs. 5000 already in your account)
Date: 1st April, Deposited Rs. 5000, Total Balance: Rs. 10,000
Date: 15th April, Withdrew Rs. 5000, Total Balance: Rs. 5,000
Date: 1st May, Deposited Rs. 10,000, Total Balance: Rs. 15,000
Date: 25th May, Deposited Rs. 2,000, Total Balance: Rs. 17,000
Date: 1st June, Deposited Rs. 3,000, Total Balane: Rs. 20,000
Date: 20th June, Withdrew Rs. 18,000, Total Balance: Rs. 2,000

In the above example, QAB will be calculated as
From April 1 - April 14 = 10,000 x 14 = Rs. 1,40,000
From April 15 - April 30 = 5,000 x 16 = Rs. 80,000
From May 1 - May 24 = 15,000 x 24 = Rs. 3,60,000
From May 25 - May 31 = 17,000 x 7 = Rs. 1,19,000
From June 1 - June 19 = 20,000 x 19 = Rs. 3,80,00
From June 20 - June 30 = 2,000 x 11 = Rs. 22,000

Total Amount = Rs. 11,01,000
Then divide it by the number of days, which is 90.
To get the QAB, which is 12,233

So your QAB is above the Rs. 10,000 limit and you are safe from penalties.
I got curious about this whole QAB business and checked out how other banks went about it. I also have accounts in a couple of other banks, so I thought it would be a worthwhile exercise. This is what I found:

1. Citibank = Rs. 25,000
2. HSBC Bank = Rs. 25,000
3. ICICI = Rs. 10,000
4. HDFC = Rs. 10,000
5. Axis Bank = Rs. 5,000
6. Kotak Mahindra Bank = Rs. 10,000

All Public Sector Banks have QABs between Rs. 500 and Rs. 1,000
Their penalties range from Rs. 50 to 200 in comparison to private banks who charge around Rs. 750 on a quarterly basis.

Banks maintain that they need to have such a minimum amount so as to be able to offer the kind of service they offer. So more service from private sector banks and hence more you're expected to pay. What are you paying for? Anything and everything from ATMs to cheque books to online help, etc.

So you decide if you feel whether you're willing to block this amount of money for the service they offer or if you'd rather switch to the lower service offerings of a PSU and maintain a lower QAB. The choice is yours.

Now I'll have to make mine.

PS: This is something that all of you should know.
The RBI, as part of its financial inclusion initiatives have made it mandatory for banks to offer low-frills and low balance accounts. Most banks have it; but it's often not disclosed to customers. For example, a no-cheque book account in SBI will have a QAB of Rs. 500 instead of Rs. 1,000. Plus, the QAB changes with location. You pay a higher amount in metros and larger cities and lower QAB in smaller towns and villages.