The Indian Banks’ Association (IBA) has requested the Reserve Bank of India (RBI) to exempt accounts held by the government with various banks from the purview of the August 6, 2020, current accounts circular. The request has been made on the basis of feedback received from IBA’s member banks, a banker aware of the development 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 the latter’s total borrowings. The deadline for complying with the circular, aimed at preventing frauds, has been extended to October 31 from July 31, 2021.
“The purpose of the circular is to prevent siphoning off funds given by banks. In the case of the government, that can hardly be considered a risk. That is why we have asked for an exemption,” the banker said.
Emails sent to the IBA and the RBI remained unanswered till the time of going to press.
According to people in the industry, the government was unhappy with the idea of having to close down some of its current accounts, which were in violation of the terms of the August 6 circular. Some banks even faced the threat of being blacklisted by the government. In order to resolve this conflict between the regulatory mandate and the government’s wishes, banks have sought government accounts to be excluded from the ambit of the circular, altogether.
While issues like this continue to hamper the implementation of the circular, bankers are taking solace from the RBI statement that issues which banks are unable to resolve themselves shall be escalated to the IBA for appropriate guidance. “Residual issues, if any, requiring regulatory consideration shall be flagged by IBA to the Reserve Bank for examination by September 30, 2021,” the RBI had said on August 4 while extending the timeline for implementing the circular.
In the meantime, the circular continues to face a legal challenge in the Kerala High Court. Muthoot Fincorp and GEO VPL Finance have moved writ petitions against the circular. In its last hearing in the matter of August 12, the court took note of the RBI’s submission, which was similar to its August 4 clarification. The next hearing in the matter is scheduled for October 12.