RBI moves to curb current account operating regulations to check fund diversion
RBI moves to curb current account operating regulations to check fund diversion. Draft circular recommends current accounts to be opened and managed only with a lead bank in the consortium. In a move to tackle fund diversion, RBI has approved stringent rules on opening as well as the running of current accounts of corporate borrowers. As per to a draft circular shared by the regulator with the banking industry, a current account can “only be opened” with the lead bank in a lending consortium while other banks having collection accounts will have to transfer money at the end of the day to the current account with the consortium leader.
RBI has proposed that the rule would apply to accounts of corporates which have borrowed as well as availed credit facilities of Rs 50 crore or more from the banking system. “RBI is skeptical about many corporates who run collection accounts means which are used for holding sale proceeds as well as other receipts with other banks so that the consortium leader cannot seize the fund or push the borrower to disburse interest rates on loan. This is particularly true for stressed accounts.,” as per senior banker.
However, once the proposed norm is executed, many midsized and smaller banks, which do not lead consortia, fear a drop in CASA (current and saving accounts) numbers that enable banks to lower fund costs. “Although RBI wants discipline in opening current accounts, a low CASA often does not go well with the regulator which sometimes points this out in the course of the inspection,” as per another banker.
As per to RBI, while there would be no limitation on the amount as well as a number of ‘credits’ in collection accounts with other banks (which are not leading consortium), the ‘debits’ should be limited to abrogating the proceeds to the current or escrow accounts retained with the lead bank. The regulator has specified that all such ‘existing’ current accounts where the account holding bank is not the consortium leader/ escrow managing bank would either have to be converted into collection account or closed, after giving due notice to the account holders, within three months from the date of the final circular. Accordingly, no debits would be allowed in such accounts after the specified period of 3 months other than for remittance to the lending bank(s). Veteran banker PH Ravikumar said that these rules could impact many Small and Medium-sized Enterprises which have to deal with long delays in payments from their customer. “These customers open current or collection accounts with other banks to draw credits that could be used to carry on production and meet the order. But Reserve Bank of India and leading banks fear that allowing such customers to withdraw funds seemingly for production, may be diverted by promoters for making favorable payments to their relatives as well as associates. Also, there are inflows which are not from regular businesses but as new private borrowings by the stressed account for the betterment of their production capabilities. Here, lending banks tend to seize those credits as well. It will help SME's if the practice of unilaterally impounding credits at the operating stage in bank branches is stopped particularly for SME accounts,” as per Ravikumar
The draft circular further recommends that while applicant (with Rs 5-50 crore credit) may open current accounts with any lending bank (which is not a consortium leader), only collection accounts can be operated with NBFC's. The proposed regulation owes its origin to RBI’s 2004 directive to banks advising them to make sure that their branches do not open current accounts of entities which enjoy credit facilities from the banking system without particularly obtaining a No-Objection Certificate (NOC) from the lending bank(s). Later, banks were permitted to open current accounts of potential customers in case no reply was received from existing bankers within a fortnight.