RBI's current account norms spell trouble for small business owners
Bankers who are privy to the difficulties faced by the customers, claim that ample time was given for closing these accounts
Small business owners have been hit hard as Indian banks have closed about a lakh of current accounts in compliance with the Reserve Bank of India’s (RBI) new directive. The central bank has directed lenders not to open current accounts for borrowers who have loans with other banks. The RBI had introduced the new set of rules for the opening of current accounts last year in August, which mandated that a borrower can have a current account with only the bank which accounts for at least 10% of his or her total borrowing. Banks were only given three months to adhere to the new strictures. However, the delay in implementation has forced the RBI to extend the deadline till July 31, 2021.
Right intention but poor execution
Despite the prevailing guidelines and penal provisions, borrowers have been diverting and siphoning off funds by opening multiple current accounts with different banks, as observed by the RBI. The new rule put in place would control and curtail the siphoning of funds, and also discipline the current account usage to monitor the cashflows efficiently.
Though the banking regulator’s intention to bring credit discipline is clear, it has caused a lot of disruptions. A senior official with a public sector bank said that the realignment and compliance of all the existing accounts has been a challenging task and the transition in no way has been smooth.
Banks sent reminders before account closure
State Bank of India (SBI) had sent repeated reminders to customers before closing more than 60,000 accounts. In a letter sent by the bank to a customer, it read that “As per RBI instructions we advise that while you may continue maintaining your cash credit or overdraft with the branch, your current account will have to be closed as the same can no longer be maintained while availing cash credit or overdraft facility. We request you to please arrange closure of your account within 30 days.”
Several customers had taken the issue to the microblogging site twitter to express their frustration, that their accounts had been frozen, with the RBI circular asking their companies to have only a single account with overdraft facility.
Bankers who are privy to the difficulties faced by the customers, claim that ample time was given for closing these accounts. They had also given multiple reminders to the borrowers, but none of them were taken seriously and had to wait for the last moment to face the fallout.