Sasi Nair
MUMBAI: Multinational banks in India are up in arms against the regulatory hurdle in bagging current accounts and lucrative fee business amid deepening divide between foreign and local banks on this.
With it being widely believed that regulatory directives have blessings of the government the MNC banks have now approached their legal counsel to formalize their reservations on the new rules. The banks believe that the directives although aimed to stall fund diversion by borrowers may end up raising fund cost and reducing ease of doing business for top-notch companies and lenders.
Foreign banks are working their strategies as they believe they wouldn’t be supported in this by the Indian Banks’ Association and State Bank of India, which is India’s largest lender.
As per Reserve Bank of India (RBI) new regulation, a bank with less than 10% approved facility to a corporate is barred from having the company’s current account (unless it is a collection account where funds are regularly transferred to a pre-agreed lending bank).
There’s been a raging debate on conflict of interest between a non-lending bank keeping a current account of a customer and other lending banks. There were apprehensions that a current account with a non-lending bank may lead to diversion of funds to a relative disadvantage to lending banks, both state-owned owns and large private ones.
For MNC banks as well as some private sector banks corporate current account forms a large portion of their inherent business and they wouldn’t want to let this happen.
Sources privy to the development have said that the MNC banks will soon approach RBI for relief in this matter. Confining current account rule for corporates which have defaulted in past, lowering cut-off on approved facility from 10% to 5% and postpone implementation till next financial year are likely to be raised. Banks are also likely to point out the operational difficulties and request RBI to exclude the applicability of the directives to current accounts related to mutual funds, insurance, salaries, dividend payment, etc.
Let us keep our fingers crossed on the outcome of this local versus foreign banks. Time will tell whether the intention is to prevent money laundering or to increase reliance on local banks as against foreign ones.
