RBI allows pvt banks to conduct govt business

Source: Business standard, Feb 01, 2012

Mumbai: The Reserve Bank of India (RBI) has decided to allow all private sector banks to undertake Central and state government business, which is still a forte of public sector banks and three large private players, ICICI Bank, HDFC Bank and Axis Bank.

Banks earn a fee while working as an agent of the central bank for collecting revenues as well as disbursing the payments under various schemes. At present, the three private banks are allowed to undertake government business in a limited way but RBI now said all the private lenders will be treated at par with their public sector counterparts.

“It has been decided that all private sector banks will now be considered eligible to handle any Central or state government business (where RBI pays agency commission) at par with public sector banks,” RBI said in a notification.

According to the regulator the move is aimed to enhance the quality of customer service in Government business through more competition, improving customer convenience by increasing the number of customer service outlets and broad basing the revenue collection and payments mechanism of governments.

RBI said those banks interested to handle government business need to be appointed as agents of RBI. For this purpose, it said government may work out the arrangement with the bank and send the proposal to the Controller General of Accounts (CGA) for examination. The CGA, in turn, will forward the recommendation the central bank and then RBI will formally appoint a bank as an agency bank.