Banks have been told not to charge fees from customers who are closing their accounts as RBI moves to make modern banking accessible to millions of ordinary people, including pensioners and the poor.

In a recent meeting between the banking regulator and heads of various banks, the central bank has told the banks not to charge any fee if a customer desires to opt out of a bank either due to a change in employment or a transfer to another city.

"How can you penalise a customer for not offering a service. Secondly, how can a bank have the authority to debit money from their customers account and credit it to their own P&L?.

Coming just weeks after triggering intense competition between banks by freeing savings rates, this diktat by RBI is likely to increase costs for all banks. But the worst-affected are likely to be the the private sector and foreign banks, who charge high fees for account closures.

The savings rate deregulation has already kicked off a rate war in the industry with aggressive new banks such as YES Bank and Kotak Mahindra increasing their rates to 7% and 6%, respectively. Account closures by people tempted by these high rates are likely to increase and banks are unlikely to have the freedom to impose any costs on such customers.