RBI current account plan splits private banks, PSBs

Idea was to stop borrowers from keeping banks in dark about their cash flows

- Subhana Shaikh & Shayan Ghosh

A valiant effort by the central bank to clamp down on fund diversion has pitted India's private sector banks against their public peers, opening up a rift in the Indian Banks' Association (IBA).

The Reserve Bank of India (RBI) last month proposed that multiple banks cannot open current accounts for a borrower who owes ₹10 crore or more to the banking system. The regulator said only two banks, that account for at least 10% of the banking system's exposure to the borrower, can open these accounts.

The idea is to prevent a borrower from keeping his bank in the dark about the cash flows he receives in a current account maintained with another bank.

Private banks fear the that proposal, if implemented, will benefit their public sector rivals as they are typically the largest lenders in any consortium, four bankers aware of the matter said, adding this will also deprive choice for customers.

"This regulation would invariably benefit the public sector banks, especially the larger ones with strong presence in corporate lending," one of the bankers cited above said on the condition of anonymity.

The private banks worry that the RBI move will cut off a key source of cheap funds, since banks do not pay any interest on current accounts.

In FY25, banks in India had ₹22.8 trillion in current account deposits, 38% of which was parked in state-owned banks, centrtal bank data showed.

Private banks and foreign banks had 44.7% and 16.2% of this, respectively.

Though the issue was discussed at the IBA, private banks are unlikely to find support from state-owned banks, the banker cited above said.