Kerala high court directed RBI to reconsider the policy, but the regulator refused
As many as 14 non-banking financial companies (NBFCs) have moved various high courts against the Reserve Bank of India’s (RBI) norms on current account opening, said three people aware of the matter, requesting anonymity.
These NBFCs, including Muthoot Fincorp, Manappuraam Finance, YogaKshemam, Kosamattam Finance, and Chemmanur Credits and Investments, have filed several cases since January against their banks, requesting clarification on the new current account norms.
Kerala high court, one of the courts hearing the multiple pleas, directed RBI to reconsider the policy. The regulator, in its reply, said the policy cannot be reversed. The court has neither put a stay nor come out with a final ruling on the matter. Instead, it has directed the NBFCs to take it up with the respective lending banks. The next hearing is on 7 April, said two of the three people cited above.
Last year, RBI revised norms for opening current accounts to strengthen credit discipline. At the time, the central bank said no bank can open current accounts for customers who have availed credit facilities in the form of cash credit or overdraft accounts.
It also said that if a bank has less than 10% of the borrower’s credit exposure, then debits to the cash credit or overdraft account can only be for credit to the cash credit or overdraft account with a bank that has 10% or more of the credit exposure. Borrowers with over ₹50 crore exposure to the banking system should have an escrow mechanism and only banks managing such escrow accounts can open current accounts, RBI added.
The last day for implementing these guidelines was 15 December, but many NBFCs continue to operate multiple current accounts linked to their existing branches.
According to the head of a small Kerala-based NBFC, operationalization of these norms is a challenge. Banks such as State Bank of India do not have the technology solution for daily reconciliation when the money is remitted from different branches to a single current account at the end of the day, said the banker, one of the people mentioned above.
“Private sector banks have technological solutions, but their branch network is limited and therefore the surplus money in NBFC branches will have to be physically transferred to the nearest bank branch with the current account. We are therefore in a quandary. For new branches, we haven’t opened a current account with any bank and continue to keep the surplus money in the branch itself," he said.
Finance Industry Development Council (FIDC) had made a representation to RBI last year seeking exemption for NBFCs from these guidelines. The central bank, however, maintains that the new norms will check the misuse of bank funds and prevent companies and large borrowers from transferring funds unfairly from term loans through current accounts in other banks.