In a move to tackle fund diversion, the Reserve Bank of India (RBI) has proposed sterner rules on opening and running of current accounts of corporate borrowers.
Current accounts, according to a draft circular shared by the
regulator with the banking industry, can “only be opened” with the lead
bank in a lending consortium while other banks having collection
accounts will have to transfer funds at the end of the day to the
current account with the consortium leader.
RBI has suggested that the rule would apply to accounts of
corporates which have borrowed and availed credit facilities of Rs 50
crore or more from the banking system.
“RBI suspects that many corporates run collection accounts (which
are used for holding sale proceeds and other receipts) with other banks
so that the consortium leader cannot impound the fund or push the
borrower to fork out interest on loans. This is particularly true for
stressed accounts...,” a senior banker told ET.
However, once the proposed regulation is executed, many midsized and smaller banks, which do not lead consortia, fear a dip in CASA
(current and saving accounts) numbers that enable banks to lower cost
of fund. “On one hand RBI wants discipline in opening current accounts.
On the other hand, a low CASA often does not go well with the regulator
which occasionally points this out in the course of inspection,” said
another banker.
According to RBI, while there would be no restriction on the amount
or number of ‘credits’ in collection accounts with other banks (which
are not leading consortium), the ‘debits’ should be limited to remitting
the proceeds to the current or escrow accounts maintained with the lead bank.
The regulator has indicated 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 permitted in such accounts after the stipulated period
of three months other than for remittance to the lending bank(s).
Such rules, said veteran banker PH Ravikumar, could impact many SMEs
which have to deal with long delays in payments from their clients.
“These customers open current or collection accounts with other banks to
draw credits that could be used to continue production and meet order.
But RBI and lead banks fear that allowing such customers to withdraw
funds ostensibly for production, may be diverted by promoters for making
preferred payments or to their relatives and associates. Also, there
are inflows which are not from regular businesses but as new private
borrowings by the stressed account to improve their production
capabilities. Here, lending banks tend to impound those credits as well.
It would help SMEs if the practice of unilaterally impounding credits
at operating level in bank branches is stopped particularly for SME
accounts,” said Ravikumar.
The draft circular further suggests that while customers (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 run
with non-lending banks. The proposed regulation owes its origin to RBI’s
2004 directive to banks advising them to ensure that their branches do
not open current accounts of entities which enjoy credit facilities
(fund based or nonfund based) from the banking system without
specifically obtaining a No-Objection Certificate (NOC) from the lending
bank(s). Later, banks were allowed to open current accounts of
prospective customers in case no response was received from existing
bankers within a fortnight.
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