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Centre lifts embargo on grant of govt companies to non-public banks

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The Centre has lifted the restrictions on the grant of presidency companies to non-public banks, Finance Minister Nirmala Sitharaman introduced on Wednesday. All personal sector banks now might be allowed to conduct government-related banking transactions, similar to tax and pension funds.

Sitharaman in a tweet mentioned that non-public banks can now be equal companions within the improvement of the Indian economic system, furthering authorities social sector initiatives, and enhancing buyer comfort.


“Embargo lifted on grant of presidency enterprise to non-public banks. All banks can now take part,” she tweeted.

By lifting the embargo, this transfer will spur competitors and promote higher effectivity within the requirements of buyer companies, the Division of Monetary Providers mentioned in a press release.

In a press release, the finance ministry mentioned the federal government has conveyed its choice to the Reserve Financial institution of India (RBI). “With the lifting of the embargo, there may be now no bar on the RBI for authorisation of personal banks for presidency enterprise, together with authorities company enterprise,” the assertion added.

Authorities-related banking transactions embody taxes and different income funds, pension funds, and small financial savings schemes.

In 2012, the finance ministry had not allowed personal banks, barring some, to undertake authorities enterprise for 3 years.

In 2015, the federal government had continued with the embargo, and allowed the personal sector with present authorities company enterprise to proceed with none contemporary authorisation to non-public banks.

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For endeavor authorities company enterprise, the RBI pays a fee to banks. The central financial institution carries out the final banking enterprise of the central and state governments via company banks appointed beneath Part 45 of the RBI Act, 1934. The federal government transactions eligible to fee are income receipts, funds on behalf of the central and state governments, pension funds, and another merchandise specified by the RBI. The present directive pertains to the central authorities’s enterprise.

“Personal banks will get a stage taking part in discipline, and get extra room for presidency enterprise,” mentioned Prashant Kumar, managing director and chief govt officer, YES Financial institution.


This may even profit prospects in particular cases like companies and companies sustaining accounts with public sector banks (PSBs) for paying tax, added Kumar. Now, this may be finished via personal banks as effectively, he added.

The social sector programmes of the federal government will be performed via personal banks as effectively, mentioned Kumar. When personal banks get authorities enterprise, they are going to be obliged to carry out, he added. “Personal banks are competent to deal with mandates for public profit with a strong digital spine.”

Hopefully, state governments will take a cue from this shift in method and turn into open to have interaction carefully with personal banks, he added.

The event underscores the significance of personal banks and their technological prowess, mentioned Prakash Agrawal, head-financial establishments at India Rankings and Analysis. This can enhance the move of present account financial savings account, together with pension accounts, enhancing each their funding and payment earnings, mentioned Agrawal.

Nevertheless, PSBs will get impacted by the transfer, as it is a very giant enterprise for them, mentioned a former public sector banker. There’s a sturdy likelihood {that a} good chunk of this enterprise will transfer to non-public banks over a time frame.

However personal banks won’t have a look at transaction-related enterprise, given not a lot cash is concerned in that, mentioned the banker. Enterprise that pertains to the deployment of funds via numerous authorities ministries might be extra profitable, he added.

R Okay Thakkar, former chairman of UCO Financial institution, mentioned the dimensions and scale of the enterprise is rising yearly and there may be area for all. “This might be good for competitors and improve buyer comfort,” he mentioned.

To provide an estimate on the dimensions of the federal government funds routed via company banks, Thakkar mentioned taxes price Rs 2-2.5 trillion are routed via company banks each month.

Calling it a “good” choice, former banking secretary D Okay Mittal mentioned the RBI will now should work out the modalities for permitting extra banks to undertake authorities enterprise. This can negatively affect banks which are presently allowed to do enterprise because of intense competitors, he added.

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