PremiumMUMBAI: Indian Banks’ Association, the banking industry lobby body, is in discussions with the Reserve Bank of India (RBI) on a circular that mandated closure of several non-compliant current accounts by 31 July, a senior banker said.
A K Das, chief executive of Bank of India, said banks have recently met RBI and will now put forth their all requests through the IBA. “We have recently had a discussion with RBI and lenders will put in a consolidated request through the IBA and act as per the regulator’s directions. We are also increasing our engagement with customers," Das said.
In a circular issued in August last year, RBI had said banks with little or no loan exposure cannot open a current account for borrowers, and existing non-compliant accounts had to be frozen. The central bank’s directive was aimed at cracking down on attempts by borrowers using current accounts at non-lending banks to siphon off funds. RBI said banks with less than 10% of the banking system exposure to a particular borrower cannot open a current account.
Mint reported on Wednesday that lenders are facing stiff resistance from government enterprises in their attempts to freeze non-compliant current accounts. Over the past few weeks, banks have closed scores of such accounts. According to a senior banker, some government enterprises have, however, told banks that if their current accounts were closed, then they will blacklist the lender. Banks, especially state-owned institutions, significantly rely on government clients for business, and such a move would hurt them the most.
According to experts, while public sector banks are largest lenders to corporate borrowers, their cash management business is handled by the private and foreign banks. There have been instances of some borrowers using current accounts at non-lending banks to siphon funds and the central bank is cracking down on such attempts.
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