Exempt NBFC sector from new current account opening guidelines: FIDC

The Finance Industry Development Council (FIDC), a representative body of assets and loan financing NBFCs, on Tuesday raised concerns on the recent norms on opening of current accounts by banks, and requested the Reserve Bank of India (RBI) to provide exemption for the sector.

The RBI on August 6 revised norms for opening of current accounts by banks, in order to strengthen credit discipline. The central bank said no bank shall 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.

The central bank said banks should not route drawal from term loans through current accounts. Since term loans are meant for specific purposes, the funds should be remitted directly to the supplier of goods and services, the RBI said.

In a letter written to RBI Governor Shaktikanta Das, FIDC said non-banking financial companies (NBFCs) and housing finance companies (HFCs) have various current accounts with banks based on the bank of the customer for which they have National Automated Clearing House (NACH)/ Electronic Clearing Services (ECS) mandates. Such banks may or may not have CC/OD facility extended to such NBFCs and HFCs.

Following the August 6 circular, these current accounts will need to be closed, it said.

The requirement to route all transactions through CC/OD account would mean that all amounts collected from its borrowers and all loan amounts disbursed have to be routed through the CC/OD account, the industry body said.

"This change will make tracking of business-wise collections and disbursals difficult for financial institutions," the letter read.

FIDC said NBFC and HFC borrowers may have provided NACH and ECS mandates from their current accounts with a particular bank. Such borrowers may not have availed CC/OD facility from the same bank.

"In view of this, if these current accounts are required to be closed or made non-operational in terms of the circular, the loan repayments will suffer as it may not be possible to procure fresh NACH / ECS mandates," it stated.

In the case of NBFCs or HFCs that avail term loans for on-lending, the requirement that the lending bank will remit funds directly to the supplier of goods and services will not be feasible, the industry body said.

FIDC said if all transactions are only to be routed through a particular bank, there would be no flexibility or back-up available in case of any unforeseen issues or freeze on transactions with that bank.

"This would automatically result in a freeze of all the transactions of that particular entity with that bank," it said.

Also, the bank in which the transactions of an entity need to be routed would be able to utilise the credits to set off its debits to the prejudice of other banks and other entities like investors having an exposure to the entity, it added.

"We, therefore, request you to review the circular in view of the above challenges and also please exempt NBFCs from this regulation on restriction of opening of current accounts and on the stipulation of remitting term loans to 'suppliers'," FIDC said.