The Association of Indian Banks (IBA) has asked the Reserve Bank of India (RBI) to exempt government-held accounts with various banks from the scope of the August 6, 2020 circular on current accounts. The request was made based on comments received from IBA member banks, a banker familiar with developments told FE.
If the central bank accedes to this request, a bank will not have to close current accounts held with it by the government even if the bank’s exposure to the government is less than 10% of total borrowings. of the last. The deadline for compliance with the circular, aimed at preventing fraud, has been extended to October 31 from July 31, 2021.
“The purpose of the circular is to prevent the siphoning of funds donated by banks. In the case of government, this can hardly be considered a risk. That’s why we asked for an exemption, ”the banker said.
Emails sent to the IBA and RBI went unanswered until going to press.
According to industry people, the government was unhappy with the idea of having to close some of its current accounts, which violated the terms of the August 6 circular. Some banks have even been threatened with being blacklisted by the government. In order to resolve this conflict between the regulatory mandate and the wishes of the government, the banks demanded that public accounts be completely excluded from the scope of the circular.
As issues like this continue to hamper the circular’s implementation, bankers are comforted by the RBI’s statement that issues that banks are unable to resolve on their own should be reported. to the IBA for appropriate advice. “Residual issues, if any, requiring regulatory review will be reported by IBA to the Reserve Bank for review by September 30, 2021,” the RBI said on August 4 while extending the implementation deadline of the circular.
In the meantime, the circular continues to be the subject of a legal challenge in the High Court of Kerala. Muthoot Fincorp and GEO VPL Finance have filed lawsuits against the circular. At its last hearing in the August 12 case, the court took note of the RBI’s submission, which was similar to its August 4 clarification. The next hearing in this case is scheduled for October 12.