Indian Banks’ Association (IBA) has requested the RBI to exclude government accounts maintained with several banks from the current accounts circular dated 6th August 2020. The banker reasoned that the circular’s purpose is to combat fraud by preventing siphoning off funds given by banks. And so, the government cannot be considered to be at risk.
The request comes after the criticism from IBA member banks. If the RBI nods, a bank will not be required to close their current accounts held by the government, even if their exposure to such current accounts is less than 10% of the governments’ total borrowings. The deadline to comply with the circular has been extended from 31st July 2021 to 31st October 2021.
It has been reported that the government was upset with the likelihood of having to close some of its current accounts as they had violated the requirements of the circular dated 6 August. Policymakers also threatened to blacklist some banks.
Banks have requested the RBI to remove government accounts from the circular’s scope entirely to reconcile the discrepancy between the mandate and the government’s intentions.
While such challenges hinder the implementation of the circular, the RBI has asserted to escalate the issues that banks are not able to resolve by themselves to the Indian Banks’ Association for help. This has comforted banks.
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