The Reserve Bank of India’s (RBI) circular to banks on ‘need for discipline’ led to the closure of many current accounts when the compliance deadline expired on July 31.
Bankers and industry officials said about the circular issued on August 6 last year that the micro, small and medium enterprises (MSMEs) are the most affected due to the account freeze. Interestingly, the movie has created a rift between public and private sector banks: the first group welcomed the action, and the second said they would lose customers.
The circular states that a bank cannot open a current account if its exposure is less than 10 per cent of the borrower’s total exposure to the banking system. “No bank shall open current account for customers who have availed credit facilities in the form of cash credit (CC) / overdraft (OD) from the banking system and all transactions shall be done through CC / OD account,” Said it.
While the initial deadline to comply with the norms was three months, it was extended till July 31 this year. According to bankers, the circular was essentially meant to stop borrowers from taking loans from public sector banks and then transferring money to private lenders for which accounts are opened.
Federation of Indian Micro and Small and Medium Enterprises (FISME) has said that MSMEs face problems and plans to write to RBI requesting relaxation. “MSMEs are facing huge problems. It is not a very well thought out decision.
There are practical problems. Sometimes it is necessary for them [MSMEs] to have accounts in another bank, otherwise the borrower is at the mercy of one bank,” according to FISME general secretary Anil Bhardwaj.
FISME is coming up with a detailed note on what problems MSMEs are facing due to norms to be shared with the banking regulator.
According to the industry body, many borrowers prefer to have current accounts with banks in addition to their cash credit accounts; one of the reasons for this is cyber fraud, as they do not want to do any online transactions from their limit account for large amounts. Money is kept in that account