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'RBI directive on current accounts to create inconveniences'
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SME Times News Bureau | 28 Sep, 2020
The Confederation of
Indian Industry (CII) has urged the Reserve Bank of India (RBI) for a
relook on its last month's circular on opening of current accounts in
banks and suggested changes.
The industry body has written to the RBI and also submitted a detailed note with its recommendations.
"While
the RBI guidelines are of appropriate intent, they are likely to
disrupt the ongoing servicing of clients by banks, NBFCs, HFCs and is
expected to lead to a manifold increase in operational workflows,
inefficiencies, delays, inconveniences and costs for delivery of
products and services to clients in addition to potential operational
risk issues," a CII statement said.
The RBI revised guidelines on
the 'opening of current accounts' by banks were aimed to ensure
discipline in view of concerns emanating from the use of multiple
operating accounts by borrowers, both current accounts (CA) and cash
credit (CC) or overdraft (OD) accounts.
The CII suggested
modifications to the circular to ensure that the RBI intent does not go
in vain and operations of corporates and lending institutions can
continue without much hurdles, it said.
The industry body has
recommended increasing the threshold limits from Rs 5 crore to Rs 25
crore, and Rs 50 crore to Rs 100 crore to ensure minimal impact on the
banking sector without compromising the principles articulated in the
circular.
It also said that a decrease in the banking exposure
limit from 10 per cent to 5 per cent for clients availing cash credit of
overdraft will ensure limits consistent with Tier-1 capital base to 15
per cent of the bank's capital to provide for a wider lender consortium.
The
CII has also recommended exclusion of certain categories of borrowers,
including mutual funds, insurance companies, exchange brokers, NBFCs and
housing finance companies, from the scope of the circular, on the basis
of credit worthiness in terms of external ratings, risk management, and
governance standards.
It has also urged the central bank to set
up a central framework to facilitate information-sharing among the banks
for fund flows of customers, as it has done for exposures, so that all
lending banks are fully cognizant of the fund flow and can take timely
action when required.
"Such a framework will address the risk of
diversion of cash flows and negate the need for operational controls
mentioned in the circular," the CII said.
For implementation of
the circular, the CII has urged the RBI to consider allowing additional
timeline till April 1, 2021, considering the current state of readiness
of corporate borrowers and likely operational challenges to be faced
while adopting a measured and smooth transition.
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