The circular mandated each bank to close current accounts of borrowers to whom the bank’s exposure was less than 10% of its total borrowings. The deadline for complying with the circular, which was aimed at preventing frauds, was July 31.
Hearing a batch of petitions against the Reserve Bank of India’s (RBI) current accounts circular dated August 6, 2020, the Kerala High Court on Tuesday extended till August 12 the status quo on current accounts of a clutch of non-banking financial companies (NBFCs) in the state.
In other words, banks with whom these NBFCs have current accounts will not be allowed to close those accounts even if they are violative of the August 6 circular. The circular mandated each bank to close current accounts of borrowers to whom the bank’s exposure was less than 10% of its total borrowings. The deadline for complying with the circular, which was aimed at preventing frauds, was July 31.
On Tuesday, the RBI told the court that it will submit a counter affidavit to explain its position, according to a source privy to the proceedings. While one of the petitioners, Muthoot Fincorp, has requested the court to extend the timeline to implement the circular, other petitioners like GEO VPL Finance have pleaded for it to be scrapped altogether.
“Some of the petitioners have challenged the circular and argued that it is not implementable in its current form. They have said that the RBI needs to consider the genuine hardships of NBFCs and come up with a viable alternative,” said a person close to the developments.
In the run-up to the deadline, banks wrote to borrowers whose current accounts were liable to be closed for being non-compliant. Quite a few customers saw their accounts being forcefully closed. Some borrowers complained on social media about what they saw as an arbitrary closure of their accounts by banks.
Earlier, in interim orders dated July 26 and July 27, the Kerala HC had said status quo must be maintained on the current accounts held by GEO VPL Finance and Muthoot Fincorp, respectively.
On Tuesday, Bank of India MD & CEO AK Das said the Indian Banks’ Association (IBA) is in touch with the RBI on the matter of the current accounts circular. “We have recently had a meeting with the regulator and all banks will put in a petition through the IBA and we shall act as per the regulator’s directions. We are also increasing our engagement with customers,” Das said.