CII asks Reserve Bank to relook circular on opening of current accounts

Industry body CII has urged the Reserve Bank to reconsider its circular regarding opening of current accounts saying that the guidelines are likely to disrupt the servicing of clients by banks leading to inefficiencies and delays.

The RBI on August 6 issued a circular imposing restrictions on opening of multiple current accounts by borrowers.

"While the guidelines announced by RBI 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", the Confederation of Indian Industry (CII) said in a statement.

Among other things, the CII has suggested exclusion of certain categories of borrowers (other regulated entities like Mutual Funds/ PMS/ Insurance/ Exchange Brokers/ NBFCs HFCs etc) from the scope of the circular.

CII has also urged the RBI to set up a central framework to facilitate information sharing amongst the banks for fund flows of the customer as it has done for exposures.

This initiative will help the banks in taking timely action as and 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, it added.

"CII believes the purpose of the circular would be best addressed by monitoring the cash flows in customers above a certain exposure size. Smaller cases are generally sole banking cases where diversion of cash flows does not arise as all accounts of the customer will be under the purview of the sole lender," the industry chambers said, and added the circular should not be applicable for borrowers having exposure of less than Rs 25 crore.

According to CII, one of the "unintended consequences" of the circular, is not permitting customers of non-agency banks to complete their tax payments or, if they wish to do so, forcing them to shift their banking relationships to only agency banks.

"This is expected to cause unnecessary harassment to customers of such non-agency banks. To overcome this issue and to ensure that the circular is fully effective, all banks should be permitted to offer tax payments services. Alternatively, customers with borrowing in non-agency banks should be permitted to open current accounts with other banks for tax remittance purposes," it said.

The chamber also said the RBI has been extremely active since the economy was hit by the COVID pandemic.

"Through its reform measures RBI has infused liquidity into the financial system. However, with uncertainties still looming with respect to arrival of vaccine, more support will be required on an ongoing basis both from the RBI and the government to stabilise the lending sector, in turn, the economy," it said.