The Reserve Bank of India (RBI) amended its guidelines on Monday, allowing sound private sector banks to conduct government business at both the national and state levels. Scheduled private sector banks that are not covered by the RBI’s Prompt Corrective Action (PCA) system can now do government business after signing an agreement with the central bank, according to the new rules.
“On the execution of an agreement with RBI, scheduled private sector banks that do not have an agency banking agreement with RBI but plan to handle government agency business may be named as RBI agents.”
The central bank stated in a notification that “This will be reflective of the fact that the concerned bank isn’t under PCA framework or moratorium at the time of making the proposal or signing the contract with RBI.”
It should be noted that the Finance Ministry lifted the embargo on further government business allocation to private sector banks implemented in September 2012 in February 2021.
The RBI has agreed to amend the procedure for authorizing Scheduled Private Sector Banks as RBI agency banks to conduct government business in light of the lifting of the embargo. The notification also stated that existing private-sector agency banks with whom the RBI has an agency banking agreement and who are authorized to do government agency business for the Central and/or State Governments can continue to do so without seeking new approval from the central bank.
It also stated that once RBI authorizes a bank to conduct government business, separate approval from RBI is not needed for mode (physical or e-mode) or area of operations, which will be determined by the CGA (for the Central Government) or the Finance Department of the State Government, with the RBI properly informed.
