'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.