The NBFC body has raised concerns on the rule of routing all transactions through the cash credit, or overdraft account.
By Ankur Mishra
The umbrella body for non-banking financial companies (NBFCs), Finance Industry Development Council (FIDC), on Tuesday wrote to the Reserve Bank of India (RBI) requesting it to review the latest current account circular, sources close to the development told FE. The latest RBI circular, released on August 6, mandated that no bank should open current accounts for customers who have availed credit facilities in the form of cash credit (CC) or overdraft (OD) from the banking system. The circular also said all transactions should be routed through the CC/OD account.
The NBFC body has raised concerns on the rule of routing all transactions through the cash credit, or overdraft account. FIDC said NBFCs and housing finance companies (HFCs) have various current accounts with banks, based on the bank of the customer. Such banks may or may not have CC/OD facility extended to NBFC or HFC. Pursuant to the August 6 circular, these current accounts will need to be closed, said FIDC.
The NBFC body also said the requirement to route all transactions through CC/OD account would mean that all amounts collected from its borrowers and all loan amounts disbursed have to be routed through the CC/OD account. “This change will make tracking of business-wise collections and disbursals difficult for financial institutions,” FIDC said in its letter.
The borrowers of NBFCs/HFCs may have provided electronic clearing system (ECS) mandate from their current accounts with a particular bank. Such borrowers may not have availed CC/OD facility from the same bank. In view of this, if these current accounts are required to be closed, the loan repayments will suffer as it may not be possible to procure fresh ECS mandate, said FIDC. Highlighting the operational issues, FIDC said if all transactions are only to be routed through a particular bank, there would be no flexibility or back up available in case of any unforeseen situations. “This would automatically result in a freeze of all the transactions of that particular entity with that bank,” FIDC further said.
According to the latest RBI guidelines, any debit transaction can only be to remit funds to the borrower’s CC or OD account held with a bank which has an exposure of 10% or more.
Source:-financialexpress.com