Tag: reserve bank of india

PM Narendra Modi, BFSI News, ET BFSI

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The latest addition to India’s growing catalogue of digital payments solutions, voucher-based digital payment mode e-RUPI, will create a transparent and efficient welfare delivery mechanism, Prime Minister Narendra Modi said in the launch address of e-RUPI on Monday.

The purpose specific digital payment solution, developed by the National Payments Corporation of India in partnership with several government agencies, over its interoperable Unified Payments Interface (UPI) architecture will first be launched for covid vaccine dispensation at private hospitals, PM Modi said.

He added that the use cases for e-RUPI in subsequent years can be expanded from the delivery of various welfare subsidies linked to education, ration, healthcare, and fertilisers as well to relief efforts during natural calamities by different government, non-profit and corporate entities. It can also help in donations and scholarship programs for underprivileged sections of the society, Modi added.

“The launch of e-RUPI for digital transactions and Direct Benefit Transfers is a big step towards ensuring a more effective, transparent and leakage free welfare delivery system in India,” said PM Modi. “With this system, any government or non-government agency can avoid the use of cash to create a purpose specific voucher to intended beneficiaries. This will ensure that the funds will be utilised for its original purpose,” he added.

The payment system has been created by NPCI in association with the Department of Financial Services, Ministry of Health and Family Welfare and the National Health Authority. In essence e-RUPI is a digital payments mode which will be in the form of SMS strings or a Quick Response (QR) code delivered directly to beneficiaries of the intended welfare scheme without any intermediary network.

The pilot for e-RUPI will test its applications for free vaccine delivery, with broad scope also set to soon cover NHA’s PMJAY payouts as well as other digitised stamps based use cases for food delivery, fertilisers, healthcare benefits as well as scholarships and ration payments.

“Technology is a tool for social empowerment and transparency,” PM Modi said in the address. “During the pandemic, India has set an example with its Direct Benefit Transfer (DBT) architecture on effective delivery of benefits to the poor, when many countries struggled to find a solution.”

PM Modi also hailed India’s fintech and startup sectors for creating positive solutions towards social upliftment. Citing the UPI’s record volume in July where the channel reported an all-time high 324 crore transactions worth Rs 6.06 lakh crore, Modi said that indigenous payment solutions such as UPI, RuPay and Fastag have helped India lead digital payments innovations.

Now, the launch of e-RUPI marks the first issuance of a digital voucher in India that can be a purpose-specific substitute for bank notes, debit cards or biometric modes of payments. e-RUPI addresses main challenges with bank account based direct transactions such as lack of transparency on end-use, high authentication failure rates, inactive bank accounts as well as lack of cash out points in rural India, according to experts.

Earlier this month, the Reserve Bank of India deputy governor T Rabi Sankar in a speech also hinted that the central bank is working towards first of its kind Indian Central Bank Digital Currency (CBDC) – an Indian sovereign cryptocurrency.

However, e-RUPI would be different from a CBDC in that it won’t be interchangeable with cash or currency and can be redeemed only for the specific use case it has been created. NPCI and select banks – both public and private sector – onboarded as issuing entities will take payment orders from corporate or government agencies which will include the details of persons and the purpose for which payments will be booked. The authentication of the person can happen through the registered mobile number of intended beneficiaries.

The prepaid digital stamp is set to be accepted at enabled centres – first for vaccinations – without a mobile app or internet banking or any other physical interface.



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Covid-19 pandemic considerably accelerated adoption of digital payments in India: RBP Finivis

Banking & Finance

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Sam Gupta, Director & CEO, RBP Finivis

Amid the Covid-19 pandemic in the country, fintechs have been at the forefront of India’s financial inclusion efforts. Among the new crop of fintechs in the country, Panchkula-based RBP Finivis is rapidly expanding its footprint. In an interaction with Financial Express (Online), its director & chief executive officer Sam Gupta shared his views on Covid-19’s impact on the fintech industry, the importance of financial inclusion, and RBP Finivis’ growth and expansion plans. Edited excerpts:

India has a strong banking system. Why do you think fintechs are crucial for financial inclusion in India?
The implementation of financial inclusion held in the 1960s kept an eye on the economic development in India with the nationalisation of banks. The regulator advised all banks to include financial inclusion in their business outreach. Since then, its progress was monitored by the Reserve Bank of India (RBI) through the implementation of Financial Inclusion Plans (FIP) in terms of predetermined parameters. The key role of fintechs in financial inclusion is by making changes in the traditional business model of banks and financial institutions; it can deliver financial products and services to the financially excluded population in a more accountable and efficient manner in the least possible time.

How has Covid-19 impacted the Indian fintech industry and your business?
The pandemic has considerably accelerated the adoption of digital payments, and seen lending solutions grow at a breakneck speed, resulting in the mass inclusion of factions of the society that were ill-served by traditional financial methods. The usage of digital and contactless payments surged during the pandemic, as people opted for safer ways to transact financially. Our business and employees have been impacted, too, by the pandemic. In terms of business, we have seen more digital transactions during this period.

Amid the pandemic, when do you see revival in the fintech industry?

We do not see the pandemic as a lost opportunity; rather it has generated unexpected revenues that were never imagined. The fintech industry has seen a steep rise in the number of transactions amid the lockdown. The year 2020 is seen to be a boom for the industry and things are happening at a fast pace. To an extent, the pandemic has proved beneficial for the fintech industry players to execute their plans and try to maximise reach with their offerings.

There are already established players like Paytm and PhonePe, etc. present in the Indian fintech market. What makes RBP Finivis different from others?

Our unique offering in the market for the B2C segment is a key differentiator from other existing players. We have a qualified technology team with 10 years of experience. Digital India success is our main mantra which we leverage in our services and offerings. The launch of MEGO will be path-breaking in the fintech industry. And, an important factor that the products such as AEPS (Aadhaar Enabled Payment system) and Micro ATMs are not operated by Paytm and PhonePe like brands.

What is MEGO Pay ATM? How is it different from other bank ATMs?
MEGO conceptualises the key digital offering of RBP Finivis. Micro ATM is one of the core components of our offerings. The device includes a card reader with features of deposit, balance inquiry, and cash withdrawal from all bank debit cards. It is a mini version of large ATMs with a POS (point of sales) terminal. Micro ATM facilitates the feature of a swipe machine to connect with the core banking system. With our micro ATM services also known as mini ATM services in India, we are determined to change a common man’s life.

What is your present market share and who are your competitors in the market?
Our market share is minimal at present. By 2021-end and 2022 we would have a percentage in the overall market share as we operate in both B2B and B2c segments. Our competitors are Paytm, GooglePay, Mobikwik, and PhonePe.

How many states/markets do you have a presence in now? Any expansion plan?

We are currently based out of Panchkula (Haryana) and have a research team operating from Kolkata. We have plans to expand our branches and services to a number of states which include Delhi NCR, Assam, Mizoram, Tripura, Arunachal Pradesh, Himachal Pradesh, Jammu & Kashmir, Punjab, and Haryana.

What is the size of your customer base, and its growth rate?
With the introduction of artificial intelligence (AI) which will increase the efficiency of digital payments, and during the pandemic, the trend has seen an immense upsurge in terms of usage of it (digital payments). It will change the complete dimensions of the Indian economy. Our target segments are school and college students, unemployed youth, rural people, and consumers who are market smart and look for discounts and offers in their spending. In our B2C offerings, we provide unique and advanced technology-enabled features to our consumers to redeem their offers and cash backs via web app and cards. Bringing digital banking to rural India is our main target to achieve by acquiring 15% of the rural subscribers base.

Where do you see RBP Finivis in the next two years, in terms of company size (number of employees), revenue, and growth?

We are driving on 12% steep growth and plan to accelerate it in the second half of the year. In the next two years, we are aiming to enroll 500+ employees on the payroll. And in terms of growth, we are considerably aiming at a gross turnover of Rs 4,000 crore in 2021 and Rs 9,000 crore in 2022.

When are you expecting to break even?

We expect our break-even by July 2022 with a turnover of over Rs 200 crore. We could have achieved break-even much earlier but due to Covid-19 things got slow after the lockdown.

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All about RuPay, India’s payments network, BFSI News, ET BFSI

Personal Finance

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-By Ishan Shah & Tarika Sethia

What is RuPay?

The National Payments Corporation of India’s (NPCI) brainchild, RuPay is a native card payments network initiated by the Reserve Bank of India (RBI). It is a financial services and payment services system launched in 2012 and dedicated to the country in 2014. A fusion between ‘rupee’ and ‘payment’ inspired its name along with the intent to bring India into the global payments market via its indigenous card facility.

Why was RuPay launched?

The proposition of a cashless India was enhanced with the introduction of the RuPay cards. Building a cashless economy requires financial inclusion and RuPay reached rural India and boosted digital payments with the Pradhan Mantri Jan Dhan Yojana scheme. Under PMJDY, 258 million RuPay debit cards were issued in 2020 alone from public sector banks under the Indian government’s financial plan. From 15% in 2017 to over 60% in 2020, RuPay’s Indian market share has accelerated.

Moreover, with no domestic payments network, banks were forced to pay high affiliation charges to multinationals like Mastercard and Visa for trusted associations. Hence, NPCI was created as a non-profit payments company to construct an affordable and accessible payments network for Indians.

Where are RuPay cards accepted?

They are accepted at all ATMs, by POS machines in India, and for domestic online and offline shopping. They aren’t accepted internationally except at those ATMs, POS machines and e-commerce websites where ‘Discover Financial Service’ (DFS) and ‘Diner’ is enabled. Presently, cards under RuPay Global are accepted at over 42.4 million POS locations and over 1.90 million ATM locations in over 185 countries.

Why a RuPay card?

Being a domestic framework, banks issuing RuPay cards are at an advantage as they are not required to pay network registration fees unlike in the case of a Visa or MasterCard registration. With a zero merchant discount rate (MDR), banks have also agreed to charge nothing on UPI and RuPay card transactions. This has made RuPay transactions preferable while also stimulating FinTechs to innovate and provide better payment products to customers because of the ease of UPI and RuPay payments framework.

All about RuPay, India's payments network

It also has a greater reach in rural areas. Under the PMJDY scheme, free RuPay debit cards were given to all bank account holders. As all processing of transactions happens in the country, there is also a lower settlement cost.

RuPay has both debit and credit cards for individuals, corporates, and prepaid cards; there’s a ‘Kisan Credit Card’ available as well. There’s also a ‘contactless’ card that facilitates transactions on a single tap, making payments without disclosing crucial card details.

What does RuPay’s future look like?

With a recent ban on new issuances by MasterCard, RuPay has an opportunistic freeway to capture the credit and debit card market in India. As of November 2020, around 603.6 million RuPay cards have been issued by nearly 1,158 banks.

All about RuPay, India's payments network

Banks are also pushing towards a higher RuPay card issuance after FM Nirmala Sitharaman said, “RuPay card will have to be the only card you promote. Whoever needs a card, RuPay will be the only card you would promote and I would not think it is necessary today in India when RuPay is becoming global, for Indians to be given any other card first than RuPay itself,” at the 73rd annual general meeting of the Indian Banks’ Association (IBA) last year.

Even in the credit space, Visa and MasterCard have made themselves comfortable at the top with huge amounts of credit card transactions happening via POS machines. RuPay can conquer the card space.



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RBI’s new rules on interchange fee, 24/7 bulk clearing facility functional, BFSI News, ET BFSI

Banking & Finance

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The Reserve Bank of India‘s new directions on raising interchange fee and making available the facility of bulk clearing round the clock have become effective from Sunday onwards.

The RBI in June raised the interchange fee for financial transactions from Rs 15 to Rs 17, while for non-financial transactions the increase was done from Rs 5 to Rs 6. These new rates have become applicable from August 1, 2021, as per the RBI’s direction.

An interchange fee is a fee charged by banks to the merchant who processes a credit card or debit card payment.

Besides, the National Automated Clearing House (NACH) has been made available on all days of the week, effective August 1, 2021.

NACH, a bulk payment system operated by the National Payments Corporation of India (NPCI) facilitates one-to-many credit transfers such as payment of dividend, interest, salary and pension.

It also facilitates the collection of payments pertaining to electricity, gas, telephone, water, periodic instalments towards loans, investments in mutual funds and insurance premiums.

During the bi-monthly monetary policy review in June, RBI governor Shaktikanta Das had announced that in order to further enhance the convenience of customers, the NACH will be available on all days of the week.

The facility was available only when banks were open, usually between Monday to Friday. Auto-debit instructions given by the bank account holder were not processed on days the bank were closed like Sundays, bank holidays and even gazetted holidays. Further, since most companies use NACH for salary credits these also did not happen on bank holidays.

Meanwhile, ICICI Bank has revised charges for cash withdrawals from ATMs, cheque books and other financial transactions from August 1. The revised charges will be applicable for domestic savings account holders including salary accounts.



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Banks’ use of FD-OD fix irks RBI, BFSI News, ET BFSI

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Banks are cutting new deals with corporates to dodge a recent Reserve Bank of India (RBI) rule. The tactic is not going down well with the regulator, which has got wind of it.

Loosely called the ‘FD-OD’ deal, it’s a simple arrangement where a company parks some funds as fixed deposits (FD) and the bank gives an overdraft (OD) to the client. The innocuous transaction is being used as a ploy to overcome the rule prohibiting a bank from having a current account of a company to which it has given little or no loans. According to the regulation, abank with less than 10% of total approved facilities — comprising loans, non-fund businesses such as guarantees and overdrafts —to a company cannot have its current accounts, which are sought after by lenders as zero-interest deposits lower cost of funds.

RBI had directed all banks to give up such current accounts by July 30. The regulator, according to media reports, had even frozen accounts after some banks failed to meet the deadline.

In the past few weeks, though, here’s what many companies and banks have done. Say, total facilities by the banking industry to a company is Rs 1,000 crore, while the bank that holds the company’s current accounts has only Rs 10 crore loan exposure to the entity. According to the RBI directive, it has to then surrender the current account. Now, to bypass this rule, the FD-OD arrangement is entered into. To maintain the current account with the same bank, the company makes an FD of Rs 105 crore with the bank, which, in turn, extends a ‘secured OD’ of Rs 100 crore. Since the bank’s exposure to the company (by virtue of the OD) is now 10% of the total facilities approved by the banking industry, the current accounts are retained by it without taking any extra risk.

“RBI has come to know of these back-to-back deals,” said a senior banker. “Senior supervisory managers (of RBI) assigned to various banks are enquiring with banks to check whether the regulation is being followed in letter and spirit. Deputy governor MK Jain is serious about the directive, even though it boils down to micromanagement by the central bank. Even if an RBI official thinks differently, he has to follow the instructions.” (Jain’s responsibilities include supervision and HR, among other things).

“Technically, banks are not breaking any rules. So, on what grounds would RBI stop ODs?” said the banker.

The regulation stems from RBI’s belief that errant corporate borrowers will find it tougher to divert funds if their current and collection accounts lie with lending banks. However, industry sources say that current accounts are often kept with non-lending banks due to genuine business reasons. Not all lending banks, say industry sources, have good cash-management practices that corporates require for vendor payments, escrow accounts, collection from sales etc.

TEMPORARY SOLUTION

Bankers, however, know that the FD-OD deal can only be a temporary solution, as companies may pull out FDs if there is a sudden fund crunch.



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Forcing minimum claim period of 1 year on bank guarantees wrong, says Delhi HC, BFSI News, ET BFSI

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In a ruling that will help infrastructure and construction companies, the Delhi High Court said forcing a minimum claim period of 12 months for bank guarantees is wrongful, rejecting interpretations that existing laws rendered shorter claim periods void.

Ruling on a petition filed by engineering conglomerate Larsen & Toubro Ltd against Punjab National Bank, a single-judge bench of the High Court observed, “It is clear that respondent No 1 (PNB) is erroneously of the view that they are in law mandated to stipulate a claim period of 12 months in the bank guarantee, failing which the clause shall be void under Section 28 of the Contract Act.”

The court directed the lender to take a relook at such agreements.

“It (Section 28) deals with the right of the creditor to enforce his rights under the bank guarantee, in case of refusal by the guarantor to pay, before an appropriate court or tribunal,” Justice Jayant Nath observed in a 43-page order issued on Wednesday. It does not deal with the claim period – a time within which the beneficiary is entitled to claim the guarantee.

Experts said the ruling will particularly benefit infrastructure and construction companies that need to issue bank guarantees while fulfilling contracts for government bodies and public sector undertakings.

“This decision will have far-reaching consequences because it will give both banks and companies the much-needed flexibility in entering into contracts related to bank guarantees,” said Ashish K Singh, managing partner of law firm Capstone Legal.

Anil Goel, founder and chairman of insolvency professional company AAA Insolvency Professionals, said, “Construction companies bidding for projects should have the flexibility to bank guarantee from banks. Multiple options to get it should help them bid for more projects and save costs substantially.”

L&T, in its petition, argued that PNB’s insistence on a bank guarantee (BG) for 12 months, due to misinterpretation of Section 28, has unnecessarily made the company liable to pay commission charges for such extended BG when the principal contract would be for a much shorter period.

Also, companies have to maintain collateral security – or margin money against which a bank guarantee is issued – for supporting an extended claim period, which affects their capability to do business by entering new contracts, L&T said.

Hemant Kumar, group general counsel of L&T, confirmed the passing of an order by the Delhi High Court but refused to divulge any details.

An email query to PNB remained unanswered as of press time Friday.

L&T had made the Indian Banks’ Association (IBA) and the Reserve Bank of India (RBI) parties in the case.

As per the court order, PNB’s stand is due to letters issued by IBA on December 12, 2018, to its member banks, stating that if a bank issues a claim period of less than one year on top of the guarantee period then such a bank guarantee would not have the benefit of Exception 3 to Section 28 of the Contract Act.

Exception 3, inserted as an amendment to the Act in 2013, allowed lenders to limit the period to make a claim up to one year, down from the minimum of three years provided under the Limitation Act.

BGs are provided on a case to case basis depending on banks and individual clients. The margin money varies, but normally it is about 10-20% of the bank guarantee amount, industry insiders said.



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New IDBI owners may get RBI road map to cut stake, BFSI News, ET BFSI

Banking & Finance

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NEW DELHI: The Reserve Bank of India (RBI) is expected to provide a road map to the new owners of IDBI Bank for reducing their stake as the government seeks to sell its equity, along with shares held by Life Insurance Corporation (LIC) of India, by the end of the current fiscal year.

Although the RBI has not firmed up its views on new licensing norms for private banks, announcement of the new structure may help generate more interest in the lender, which the Centre has been seeking to reposition for two decades but with little success.

In the past, the RBI had indicated that the government’s stake sale and announcement of the new norms were not linked. Sources, however, said that the government has been in dialogue with the RBI on stake sale and the regulator was aware of the need to provide a road map for comfort to potential buyers.

The current guidelines stipulate 40% minimum shareholding in terms of the paid up capital or voting rights. Over 10 years, this needs to be diluted to 20-30% and further reduced to 15-26% between 12 and 15 years, depending on the licence vintage. An internal group set up by the RBI had proposed reworking these, apart from allowing corporate houses into the space.

Many of the bidders may seek clarity on these aspects. Recently, the department of investment and public asset management had said that the government and LIC would decide on the extent of stake sale during the process of finalising the deal.

Although private investors are keen that the government holds no stake, something that NITI Aayog too had noted in some of its recommendations, government sources said, the idea was to leave it to bidders to decide the best course of action. “Someone may want majority control, while someone may like to do with a lower stake. Let the bidders decide,” said a source.

The government currently holds 45.5% in the financial institution-turned-universal bank with LIC’s shareholding pegged at 49.2%. On Friday, the bank’s share rose 0.4% to close at Rs 37.9 on BSE but is still lower than LIC’s acquisition price. LIC had acquired shares in IDBI Bank in three tranches.



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Mastercard submits new audit to India after ban over data handling, BFSI News, ET BFSI

Banking & Finance

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Mastercard has submitted a new audit report to India’s central bank, it told Reuters, as it seeks to overturn a ban on card issuance linked to concerns over the U.S. giant’s handling of data processed abroad.

The Reserve Bank of India (RBI) on July 14 sent panic-waves through Indian banking partners by announcing a ban, effective from July 22, to prevent the U.S. giant from issuing new cards. It cited non-compliance with 2018 rules that required it to store payments data only in India.

The RBI imposed the ban after deciding a “system audit report” submitted by Mastercard’s auditor Deloitte in April was unsatisfactory, three sources familiar with its decision-making said, asking not to be named because of the sensitivity of the issue. Two of the sources said the RBI was reviewing the new report.

In a statement to Reuters, Mastercard said Deloitte performed a “supplemental audit” and a new report was submitted on July 20 to the RBI, six days after the ban was announced.

“We look forward to continuing our conversations with the RBI and reinforcing how seriously we take our obligations. We are hopeful that this latest filing provides the assurances required to address their concerns,” it said.

Deloitte declined to comment, citing confidentiality obligations. The RBI did not respond to a request for comment.

The sources said the RBI was concerned Deloitte’s audit did not clearly state how long Mastercard took to purge Indians’ card data that is processed abroad before being stored locally.

India’s 2018 rules do not restrict where the data is processed, but for “unfettered supervisory access”, the RBI mandates that within a day the data – including transaction details and amount – should be stored domestically.

Mastercard in 2018 said it had started storing data at a facility in India’s western city of Pune to comply. But it still processes a part of each Indian transaction through data centres abroad, and later transfers and stores that data in Pune, one of the sources said.

The RBI has given no details beyond a seven-line statement announcing the ban. The details of RBI’s concern with Deloitte’s submissions have not previously been reported.

American Express, whose Indian presence is much smaller than that of Mastercard and Visa, has also has been banned from issuing new cards since April for violating the 2018 rules.

A fourth person with direct knowledge of the matter said the RBI had given Mastercard multiple extensions to submit clarifications and RBI only issued the ban when Mastercard asked for more time when an extension to July 9 lapsed.

Mastercard did not comment on the extension and the situation in Pune.



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SFBs avoid special liquidity window as MSME credit demand dries up, BFSI News, ET BFSI

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Small finance banks (SFBs) that got a push from the Reserve Bank of India in terms of special liquidity window have been slow to tap into it.

Under the Rs 10,000-crore liquidity facility announced by the Reserve Bank of India (RBI) in May as part of its pandemic relief measures, SFBs get funds at 4% for three years, which is significantly lower than their average cost of funds, for fresh lending to micro, small and medium enterprises (MSMEs). The new facility helps them to get about 1-1.5% positive carry on the borrowed funds, even after investing the same amount into government securities as mandated by the central bank.

However, in the Special Long-Term Repo Operations (SLTRO) conducted by the Reserve Bank of India in May, June and July, SFBs cumulatively borrowed only Rs 1,640 crore against the notified amount of Rs 10,000 crore. They can still borrow the unutilised amount of Rs 8,360 crore till October.

Experts says ample liquidity and muted credit demand from the micro, small and medium enterprise (MSME) segment.

SLTRO boost

Announcing the SLTRO in May, RBI governor Shaktikanta Das had said, “Small finance banks (SFBs) have been playing a prominent role by acting as a conduit for the last-mile supply of credit to individuals and small businesses.”.

“To provide further support to small business units, micro and small industries, and other unorganised sector entities adversely affected during the current wave of the pandemic, it has been decided to conduct special three-year long-term repo operations of Rs 10,000 crore at repo rate for the SFBs, to be deployed for fresh lending of up to Rs 10 lakh per borrower,” Das had said, adding that the facility will remain open till October 31, 2021.

Priority loans

The RBI had also allowed the classification of priority sector lending for loans given by small finance banks (SFB) to micro-finance institutions (MFI) for on-lending to individuals.

The decision has been taken to address the liquidity issues of MFIs amid the severe Covid crisis.

RBI Governor Shaktikanta Das said: “In view of the fresh challenges brought on by the pandemic and to address the emergent liquidity position of smaller MFIs, SFBs are now being permitted to reckon fresh lending to smaller MFIs (with asset size of up to Rs 500 crore) for on-lending to individual borrowers as priority sector lending.” This facility will be available up to March 31, 2022.



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RBI’s current account rule kicks in, hits small firms, BFSI News, ET BFSI

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Small businessmen and firms are hit as banks rush to meet the July 31, Reserve Bank of India deadline for not opening current account for borrowers who have loans with other banks

Banks are freezing current accounts of firms with more than 10% loans with other banks. Mostly small firms are hit as large corprates have their loans spread across banks.

The 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.

Banks can have current accounts for that bank which accounts for at least 10% of its loans, according to RBI rules.

It had said that in the 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.

The circular was to be implemented by January this year. However, with banks dragging their feet, the central bank has imposed July 2021 as a final deadline.

However, small borrowers who use one bank to borrow and another for transactions will no longer be able to do so.

Several entrepreneurs, who do banking with private banks for their superior service, but have loans with public sector banks have been hit by the circular as their accounts are frozen.

Big banks gain

The Reserve Bank of India’s (RBI) insistence on companies opening current accounts with banks is among the factors that have helped large lenders such as HDFC Bank, ICICI Bank and SBI raise their shares of the competitive corporate banking market in 2020, according to a report.

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.



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