How RBI’s current a/c norms have put smaller banks at a disadvantage, BFSI News, ET BFSI
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Apart from the RBI rules, the government’s mega merger to reduce the number of state-owned banks has also helped in the trend, rating agency Crisil said on Wednesday in the report.
In mid-2020, the RBI had come up with the circular that specified which bank can open a current account for a borrower, in order to check any misuse through multiple current accounts.
A fourth of the large and medium corporates said they were banking with at least one among ICICI Bank, Axis Bank and HDFC Bank as against 17 per cent in 2016, it said adding that the private sector banks have grown at over 25 per cent per year.
In most of the four-year period, SBI defended its market-leading penetration levels but in 2020, the lender expanded its footprint. Now, nearly a third of corporates do business with the largest lender and 30 per cent name it as their cash management provider.
The RBI circular
In its August 6, 2020, circular, the regulator had mandated that no bank shall open current accounts for customers who have availed credit facilities in the form of CC/OD from the banking system, and all transactions shall be routed through the CC/OD account. The RBI moved was targeted to ensure greater discipline and transparency in the way large borrowers move funds.
It had said that in case where a bank’s exposure to a borrower was less than 10% of the banking system’s exposure to that borrower, 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% or more of the exposure of the banking system to that borrower.
“Several trends have contributed to the pick-up in market penetration among the leading banks, including the ‘mega merger’ of the country’s public sector banks and the Reserve Bank of India’s ‘circular on current accounts’, which essentially rules that banks can only open current accounts for companies to whom they are also major credit providers, the report said.
Consolidation
It said the pressures exerted by the pandemic will accelerate the consolidation of the Indian corporate banking industry, as the market’s biggest banks prove themselves best-positioned to help large- and middle-market companies overcome crisis disruptions.
“When the pandemic sent the country into lockdown last year, companies needed immediate assistance from banks, at first to ensure financial stability, and then to keep businesses running,” says Gaurav Arora, head of Asia at Coalition Greenwich, part of Crisil, said.
The 2021 ‘Coalition Greenwich’ research study mentioned State Bank of India, along with leading private sector banks Axis Bank and HDFC Bank, and foreign banks Citi and HSBC, as companies’ top sources of support during the crisis.
The report said that even before the start of the global pandemic, India’s corporate banking market was on a consolidation path, driven by decisive steps by regulators to solidify the country’s banking sector, and the rapid evolution and growth of the leading private banks.
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