The Reserve Bank's new guidelines on current account have made the foreign banks jittery, as they will not be able to garner nil-interest funds from corporate in the name of providing better services than their domestic counterparts, said a senior banker. As per the latest RBI guidelines, a bank opening a dedicated current account of any company with Rs 50 crore or more in debt must have at least 10 per cent loan exposure in the concerned business entity.
Most foreign banks manage current accounts of corporate without providing any loan to them. So far, foreign banks used to manage the large current accounts of India Inc with virtually little or no exposure, the senior executive of a public sector bank said.
Lending used to come from domestic banks but current account management were with foreign banks as they promised better services and other incentives, the banker added. Without having any liability, another banker said, foreign banks were managing large current accounts where interest outgo was nil but the latest guideline from the Reserve Bank of India will put a curb on this practice.
Since public-sector banks do the bulk of corporate lending, they stand to gain from these guidelines on current accounts. On August 6, the RBI had observed that the checks and balances put in place in the existing framework for opening current accounts are inadequate.
"Where a bank's exposure to a borrower is less than 10 per cent of the exposure of the banking system to that borrower, while credits are freely permitted, debits to the CC/OD account can only be for credit to the CC/OD account of that borrower with a bank that has 10 per cent or more of the exposure of the banking system to that borrower," the RBI had said. The central bank has said the credit balances in such accounts should not be used as margin for availing any non-fund based credit facilities.
"In case there is more than one bank having 10 per cent or more of the exposure of the banking system to that borrower, the bank to which the funds are to be remitted may be decided mutually between the borrower and the banks," it said. In the case of customers who have not availed CC/OD facility from any bank, the RBI has set three parameters for opening current accounts. In the case of borrowers where exposure of the banking system is Rs 50 crore or more, banks will be required to put in place an escrow mechanism.
With a view to improve credit discipline, it also barred banks from opening current accounts for customers who have availed cash credit or overdraft (OD) facilities. The central bank said that rather than opening a new current account, all transactions should be routed through cash credit (CC) or over draft (OD) account.
There are concerns emanating from the use of multiple accounts by borrowers, which calls for the need for safeguards for opening of such accounts by borrowers availing credit facilities from multiple banks, the RBI said. If a customer opens multiple accounts and there is no monitoring of end use of funds, there is a possibility that the same customer could indulge in maleficence by drawing down money from the same bank through a different account.
There is also a possibility that the money could be used to repay the first credit facility and keep using the same modus operandi which can potentially lead to a wider concern.