Banks await clarity from RBI on current account opening norms

Banks are awaiting more clarity from the Reserve Bank of India on its current account circular but domestic lenders believe it is a good move that will ensure a comprehensive relationship with customers.

“There are a lot of issues on which banks have sought clarity from the RBI regarding the issue of current accounts. The Indian Banks’ Association is working on the issue,” said two persons familiar with the development.

These include issues as to which kind of current accounts will be impacted, what would be included in a loan exposure, what happens to existing arrangements and whether the ₹5 crore limit will apply for all accounts, sources familiar with the development said.

“Current account is a very broad spectrum, banks want clarification on exactly which accounts will the circular impact, will they all have a ₹5 crore limit or could it be lower as well. There is a long list the question banks have sent through IBA,” noted a banker.

Deadline extension

The RBI had on November 2 extended the deadline for banks to comply with the norms for opening current accounts to December 15. It had initially set a deadline of November 5.

“We have since received several references from banks seeking clarifications on operational issues regarding maintenance of current accounts already opened by the banks. These references are being examined by the Reserve Bank and will be clarified separately by means of a FAQ,” the RBI said.

The central bank had on August 6 issued instructions to banks for opening current accounts. It had said that no bank should open current accounts for customers who have availed credit facilities in the form of cash credit (CC)/ overdraft (OD) from the banking system and all transactions shall be routed through the CC/OD account. Banks had been given three months to comply with the guidelines.

Most domestic banks, including private-sector lenders, are in favour of the move although it is expected to pose challenges for Indian branches for foreign banks.

“The intent of the RBI circular is super powerful. It will ensure that banks do not pick up only one piece of the customer relationship, but work on all aspects including cash management, working capital, current account,” noted an industry expert who did not wish to be quoted.

“The RBI circular is intended to enable lenders to have a better control on borrowers’ cash flows and monitoring the same. The measure may also improve discipline among the borrowers as instances of diversion of funds could come down,” ICRA had said in a noted, adding that nearly with 65 per cent share in the bank credit, public sector banks have a relatively lower share of about 52 per cent in the current account deposits of the banking system, as private banks enjoy a better float of current account balances from their customers.

In September, Confederation of Indian Industry had written to the RBI suggesting some changes to ensure that the intent of the RBI does not go in vain and operations of corporates and lending institutions can continue without being impacted too much.

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