Daybreak - Your missed SIP could be making banks tens of crores every month

Episode Date: April 19, 2026

When your SIP bounces, your bank charges you Rs 500. The mutual fund that missed the investment? Charges you nothing. That gap is not an accident.In this piece, The Ken's Mutasim Khan traces how India's banks have quietly turned missed SIP debits into a revenue line — one that costs them roughly Rs 25 to process, and nets them hundreds of crores a month. The people paying most are first-time investors in smaller cities, often unaware the charge even happened.This is a read aloud of Mutasim's original story, by Snigdha Sharma, on Daybreak.📖 Read the full story on The Ken: Your missed SIP could be making banks tens of crores every month

More than a hundred million SIP accounts are active in India today. And many of them belong to first-time investors in smaller cities. These are people who are just beginning their financial journeys. But there is a charge buried in the story of inclusion that most of them don't even know about. My colleague, the Ken reporter Muttasim Khan, has been looking at what happens when your SIP bounces. And who exactly benefits when it does? He wrote about it in a recent edition of the Kent's newsletter, Making India Competitive Again.

And today, I'm going to be reading it out to you. Welcome to Daybreak, a business podcast from the Ken. I'm your host, Nickha Sharma and I don't chase the news cycle. Instead, every day of the week, my colleague Rachel Vargheese and I will come to you with one business story that is worth understanding and worth your time. It would be a strange sort of a piggy bank that charged 500 rupees penalty for every missed deposit. strange because saving money is a discretionary act not an obligation at best it is a promise made to your future self and even when it lapses the effects don't travel beyond that a diligent nine-year-old

may feel mildly disappointed for having fallen short but the piggy bank having neither exposure nor the claim has little basis for a penalty yet if your piggy bank was a commercial bank and your savings habit, a systematic investment plan or SIP, skipping a month, it turns out, is a punishable event which costs 500 rupees and penalties plus 18% GSD. The same thing across millions of such lapses compounds into a revenue channel for banks worth thousands of crores of rupees annually. In March, Raghav Chudda took to the parliament floor and called out banks for collecting 19,000 crore rupees over three years solely as minimum balance penalties. Fees that are charged by a bank when your account balance falls below a certain threshold. Chadda termed this legalized pickpocketing,

which is a vivid image, though perhaps unfair to pickpockets who generally assume a high level of personal risk. For banks, on the other hand, the 19,000 crore rupees figure is only the more visible layer in a far larger penalty structure levied at rates that often bear little resemblance to what is actually costing the banks in processing, risk or anything else. This figure, for all its shock value, tells only a part of the story. It does not include the money banks make in penalties from bounce transactions, most remarkable of which is the missed SIP. Every bounce begins with what is called a mandate. When a customer signs up for a recurring payment like an SIP or an EMI, the receiving entity, which is a mutual fund, AMC or lender, is authorized to pull money from the customer's bank account.

This authorization, routed through the banking system, becomes a mandate. Basically means debit X rupees on a certain date of every month. And on that due date, NPCI's Natch, which is the infrastructure that facilitates, recurring electronic transfers of funds across different banks attempts that transfer. If the debit fails, most often because of insufficient funds, the transaction is marked as bounced and a penalty is charged. The caveat, however, is that the penalty is not levied by the mutual fund or the asset management company or AMC. That was expecting the investment. Instead, it is levied by the bank that is only holding the customer's money and in this case moving some of it.

Most of these banks levy a flat penalty of 500 per pounds, regardless of transaction size. For a first-time investor, starting with a monthly SIP of 500 or 1,000 rupees, which is a common entry point for those new to formal savings, a single bounce can cost more in penalties than the installment itself. NPCI publishes monthly data on natch debits for each bank, including a category it calls financial declines. Most of these are transactions that failed because the customer's account did not have sufficient funds on the day of the debit. Across large banks, the number of bounce transactions has grown at a CAGR of 12 to 40 percent depending on the bank. And since most of these bounces attract penalties, their penalty income has also grown.

grown similarly. As more people sign up for SIPs, loans and insurance payments, the number of mandates grow steadily and so do bounces. In this system, revenue from penalties scales automatically. In fact, for many banks, the growth in penalty income exceeds growth in their total income, albeit the former is on a much lower base. The bounce rates per bank are even more revealing. At HDFC and Access Banks, about one in five debits bounce. At Kotuck and Punjab National Bank, it is nearly one in three, and for some banks like Indescend, the bounce rate is close to 45%, which is nearly one in two. That means a debit in some banks resembles a coin toss, as likely to fail as to succeed. And this is data for banks that handle large volumes of

debits. For many smaller ones, think small finance and grameen banks that serve much of non-urban India, the bounce rates can exceed 50%. In practice, this means that a lot of the burden of these penalties falls on small ticket investors for whom both the likelihood as well as the impact of a shortfall are higher. For context, HGFC Bank processed nearly 19 million inward Natch Debits in February alone, of which 3.4 million bounced because of customer bank account having insufficient funds on the day of the mandate. Bank rules would ensure penalties on nearly all of these bounces. But for our argument's sake, let's keep the estimate conservative. Even if only 70% of those bounces attracted a penalty charge at HDFC's lower first bounce rate of 500 rupees, that is

119 crore rupees in a single month, or 1400 crore rupees annualized. And this assumes the volume stays flat, which it will not, because Natch mandates will inevitably continue to climb every month as more of India goes digital. Access Bank generated a comparable income of 82 crore rupees in February, which amounts to 980 crore rupees a year at its flat 500 charge, again before any growth is factored in. These bounces include EMI's, insurance and other recurring debits as well. The split of SIPs in this mix is not officially reported. But consider this.

SIPs alone channeled nearly 30,000 crore rupees through over 100 million active accounts in February 26. Now, even if they account for just 10% of HDFC bank's return transactions, that could mean 12 crore rupees a month in penalties on what is, at least in principle, a voluntary investment instruction that creates no debt or financial exposure for the bank. What's more, says Parajad Garg, a former SVP at Credit Information Company, CRIF India, and a digital lending expert, is that this data from NPCI only in,

includes interbank transfers. For a customer with a home loan from ICICI Bank, who also has her savings account there, the bank does not have to root the EMI collection through Natch. Such installments do not feature in the Natch data, which means that the actual bounce figure may be much larger. The counterpoint, though, is that banks typically extend large intrabank loans

to only their most creditworthy customers, which means that if these transfers were included, they could bring down bounce rates, even if the absolute number of bounces went up, added Gurg. Another point of contention is that a bank will charge the same 500 rupees whether the bounce transaction is a loan repayment or a voluntary investment, even when the two are completely different in category. When an EMI does not go through, the customer is charged twice, once by the lender because a repayment obligation was not met and once separately by the bank.

A lender levying the penalty has a clear basis. An EMI carries an obligation to pay, so a penalty can be seen as a penal charge, said Gurg, since a missed EMI increases credit risk for the lender. But an SIP carries no such obligation. It is simply an intent to pay like a standing insolm. the customer sets up voluntarily and can withdraw any time. Such a high penalty then, principally, is hard to justify. Sheffali Satsangi, the founder of Funds Vedar, a mutual fund distributor firm, agrees with this reasoning.

Unlike a loan EMI bounce, she says the bank has no exposure to credit risk or recovery cost when it comes to an SIP bounce, which is why the penalty logic collapses. It appears then that the only person worse off after an SIP bounce is the customer who missed a month of compounding and perhaps the AMC that was expecting an investment. And yet, the AMC does not charge the investor a rupee for the bounced SIP, whereas the bank charges 500 rupees. Since the penalty is not a compensation for risk, what exactly is the 500 rupees meant to compensate? the bank for. Satsangi and Gark both agree that the most likely justification for banks is the infrastructure cost. The piggy bank analogy, it appears, is not entirely accurate. Banks do incur some costs every time a mandate is issued. Part of it is the infrastructure cost, like

for servers, software, security infrastructure and compliance systems, all of which run regardless of mandate volume. In some cases, like, for an EMI, a bounce might also set off a small chain of human interventions, like a follow-up call to the borrower or some back office work for manual reconciliations. None of which is free for the bank and together forms the cost it incurs in processing a mandate. Apart from this, banks are also paid an interbank charge fee of 50 pice by the receiver for using their resources to move money from the customer's account to the receivers. This is regardless of whether the transaction is successful or not.

And yet, even after accounting for all of this, GARG places the cost ceiling for the customer's bank at 20 to 25 rupees per transaction, and that is in cases where human intervention is involved. For an SIP, where no such intervention occurs, the cost is lower still. And so, if these numbers are approximately accurate, the bank charges 500 rupees on a penalty that costs, it about 25 rupees. The penalty charges also vary widely. 500 rupees for ICICICI, 250 for SBI and 200 for Yes Bank, which leaves you wondering what exactly the cost is calibrated to. The Ken reached out to

HDFC and ICICI banks but did not receive a response. But if penalty income on this scale is profitable, are banks structurally incentivized to not solve the problem? A senior executive with experience across India's lending ecosystem told the Ken that in closed-door conversations at NBC's penalty charges are discussed as a revenue line item, that in some cases the management expects to grow. For the largest banks, it is still conceivable that the penalty income may not be worth the customer friction it creates, since however high in absolute terms, it is still minuscule compared to their total income. But for smaller lending, A few hundred crore rupees and penalty charges can meaningfully move the top line, which makes

the temptation harder to resist. Very often, customers may not even be aware that they have paid such penalties, especially for SIPs. For instance, instead of $5,000 being pulled from your account the next time, it is $5,500. And unless a customer is checking each transaction against what they expect to pay, the penalties are hard to spot. When Satsangi broadcasted a notice to her clients about SIP-Bounce charges, most respondents were surprised. A majority of them came back saying they were unaware of these high charges till date, she told again.

Satsangi sends her clients' SMS and email reminders a full week before their SIP due dates, a service that she built into her workflow using third-party software. Since the account is with the bank, she says, they have a fiduciary resource. responsibility to inform account holders about the existence of such charges and other associated costs when the account is opened. More than half of all individual mutual fund folios and 56% of new SIP registrations now belong to investors in cities beyond the top 30. These are likely people at the earliest rungs of financial participation. And with each increasing UPI penetration, daily transaction and SIP debits are carried out through the same savings account.

Bank balances no longer sit still between salary dates. A grocery payment here, a purchase there, or any other thing on any given morning, the balance may fall short of what a debit mandate expected to find. On one hand, AMFI, Seby and the government are promoting financial inclusion for the retail investor, Satsangi says. But such a high-penity structure discourages investors. especially for first-timers. The regulator, for its part, tried to address this issue.

An RBI circular from 2023 noted that the penalty charges should be reasonable and commensurate with the lapse and explicitly caution banks against using them as a revenue enhancement tool, which is a reassuring formulation but not a very useful one. Because reasonable is not defined and commensurate is not quantified and in the absence of either, 500 rupees in penalties on a 500-rupee

survive the test. Somewhere along the way, the piggy bank discovered that while it made money when you saved, it could make even more when you didn't. Daybreak is produced from the newsroom of the Ken India's first subscriber-focused business news platform. What you're listening to is just a small sample

of a subscriber-only offerings and a full subscription offers daily, long-form feature stories, newsletters and a whole bunch of premium podcasts. To subscribe, head to the ken.com and click on the red subscribe button on the top of the website. Today's episode was hosted and produced by my colleague, Snitha Sharma, and edited by Rajiv Sien.