A handful of banks have written to the Reserve Bank of India (RBI) seeking extra time to implement the regulator’s August 6 circular on the opening of current accounts (CA).
The circular mandates that no bank shall open current accounts for customers who have availed credit score facilities in the form of cash credit score (CC)/overdraft (OD) from the banking device and all transactions will be routed through the CC/OD account. The central bank has given three months to comply with the circular, which banks agree with is too little time to conform with the new rules.
Similarly, bankers assume some of the challenges to crop up while implementing the new regulations. As things stand, there is no manner for a lender to recognize the exposures other lenders need to a specific borrower or to get a complete view of the latter’s cash flows. Therefore, a centralized database of such information may need to set up, multiple bankers informed FE.
The central bank stated that if a bank’s exposure to a borrower occurs to be much less than 10% of the entire exposure of the banking system to that borrower, the bank will only be allowed to open a collection account for that borrower. Banks will follow those norms on an ongoing basis, and review exposures as a minimum every quarter. That would prove to be a challenge, given that there is at present no technological framework in place to monitor these details.
The clarifications being sought pertain to the treatment of the current account opened for particular purposes, which includes to distribute dividends or to raise capital. Banks have also asked the RBI whether exposures for compliance need to include non-fund-based exposures as well, whether or not sanctioned limits have to be taken into account or actual drawdowns,
As compared to their 65% share in bank credit, PSBs have a relatively lower share of 52% inside the CA deposits of the banking system, as private banks experience a higher float of CA balances from their customers, rating agency Icra said in a recent report. “A relatively higher share of CA balances of private banks is likewise by their better service levels which include doorstep cash management services, better tapping of the complete value chain in customer’s ecosystem, the better interface of net banking systems, etc,” Icra said.
It isn’t always clean but whether the circular will come to be benefiting PSBs greater by fetching them a higher view of their borrowers’ cash flows or whether or not it will only consolidate private banks’ developing share inside the credit business. Most PSBs have invested little in setting up cash management facilities for their customers, with State Bank of India (SBI) and Bank of Baroda (BoB) being the exceptions. So borrowers may have the selection of both shifting their cash management businesses to their biggest lenders or of moving their loans to the books of their cash managers.
