“As per RBI instructions, we advise that while you may continue maintaining your cash credit/overdraft account with the branch, your current account will have to be closed as the same can no longer be maintained while availing CC/OD facility,” one such letter sent by State Bank of India to a customer read.
Indian banks have closed hundreds of thousands of current accounts, inconveniencing many small business owners, as the time to comply with a Reserve Bank of India directive has ended.
Banks have sent emails to customers about closing or freezing their current accounts, citing RBI rules that don’t allow lenders to open such accounts for borrowers who have loans with other banks.
“As per RBI instructions, we advise that while you may continue maintaining your cash credit/overdraft account with the branch, your current account will have to be closed as the same can no longer be maintained while availing CC/OD facility,” one such letter sent byState Bank of IndiaNSE -2.21 % to a customer read. “We request you to please arrange closure of your current account within 30 days.”
SBI alone is said to have closed more than 60,000 accounts after sending repeated reminders to customers.
In August last year, the banking regulator had introduced new rules for the opening of current accounts, which mandated that a borrower can have a current account with only the bank which accounts for at least 10% of his total borrowing. While banks were given three months to adhere to the new strictures, the delay in implementation has forced the Reserve Bank to extend the deadline till July 31.
The rule aims to discipline current account usage to monitor cash flows efficiently and control siphoning of funds by regulating an already over-regulated sector. The RBI had observed that despite prevailing guidelines and penal provisions, borrowers have been diverting and siphoning off funds by opening multiple current accounts with different banks.
While the intent is clear, the need to bring in credit discipline has caused a lot of disruptions.
“We have been forced to close thousands of accounts, for the entire banking system these account closures would run into lakhs,” said a senior official with a public sector bank. “The realignment and compliance of all the existing accounts has been a challenging task and the transition has in no way been smooth.”
Several customers took to the microblogging site Twitter to express their angst. One ICICI Bank customer sought the intervention of finance minister Nirmala Sitharaman.
“Madam, please help out MSME bank accounts frozen by ICICI Bank without intimation,” tweeted Ramesh Chandran, adding: “3 of 4 current accounts frozen, RBI circular asking companies to have only a single account with OD facility.”
Another user, Mohan Bhargav, complained that he was finding it difficult to open an account with HDFC Bank because he had an OD account with the Bank of Maharashtra.
Another person complained that Union Bank had frozen his current account in an ad hoc manner, citing hefty fines by the RBI.
While bankers say that they are privy to the difficulties faced by customers, they claim ample time was given for closing these accounts. “We have sent multiple reminders to customers since last year, plus follow-ups by our relationship managers to close these accounts but many borrowers did not take this seriously and waited for the last moment to face the fallout,” an executive at a private bank said.