RBI guidelines creating difficulties for MFIs: Sa-Dhan

Kolkata: Reserve Bank of India’s latest guidelines putting restrictions on current accounts is creating difficulties for microfinance companies, their organisation Sa-Dhan said, urging the banking regulator to exempt MFIs from the purview of the rule.

Last month, RBI had barred banks from opening current accounts for customers who have availed credit facilities in the form of cash credit (CC)/ overdraft (OD) from the banking system and all transactions shall be routed through the CC/OD account.

Sa-Dhan executive director P Satish said the rule is not practical for the MFIs, which maintain various current accounts with banks based on the location of their branches.

“These current accounts will need to be closed. This is not practical,” he said in a letter to Governor Shaktikanta Das.

“Since demonetization all loan disbursements of MFIs are being credited to the bank accounts of their borrowers. Many MFIs also have ECS mandates for loan collections. Such banks may or may not have CC/OD facility extended to such MFIs,” Satish explained in his letter.

“The requirement to route all transactions through CC/OD Account, would mean that all amounts collected from the borrowers and all loan amounts disbursed have to be routed through the CC/OD account,” he added.

Satish also said that although loan disbursements of MFIs are through bank accounts of borrowers, a large part of collections are still in cash. MFIs require multiple current accounts in multiple banks for their cash management requirements.

“This circular would result in making the cash management systems of MFIs cumbersome and costly,” the letter said.





[Source – Economic Times]

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