Banks voice concern over RBI's 24x7 fund transfer decision

MUMBAI: Banks have voiced concerns over the Reserve Bank of India’s decision to introduce roundthe-clock fund transfers — cautioning the regulator that it could cause chaos. But, some in the know said their fears could well be exaggerated.Recently, RBI directed banks to keep the National Electronic Fund Transfer (NEFT) window open 24x7. The facility allows individuals and businesses to move money from any account in a bank branch to another bank branch in the country.Several senior bankers ET spoke to said lenders may run into a problem in managing cash balances if there is a large outflow late in the evening or early morning when the money market is shut — particularly, as it is unclear how the mechanism to draw a liquidity line from RBI in the wee hours would work out. A 24x7 NEFT could also pose complications in account reconciliation and crediting or debiting of interest in accounts from which funds flow in or out.Indeed, just days before RBI communique on NEFT, the industry body Indian Banks’ Association (IBA) in a letter to RBI executive director S Ganesh Kumar said: “..Opening up NEFT 24x7 will increase the risk as without any cap on value per transaction, (it) could lead to extreme flows when banks are closed.” The IBA letter dated November 30, 2019, said: “Since NEFT is interoperable across banks, even if some of the banks are not ready it will create chaos.”72878649 Responding to ET’s email query, IBA chief executive VG Kannan said: “These are very early days and so far no bank has faced any problem. We have raised certain issues with RBI and these have been partly addressed. For instance, RBI is offering a liquidity window but we would have to wait to figure out the system,” said VG Kannan, chief executive of IBA. The RBI spokesman declined to comment.Banks had said that managing CRR (cash reserve ratio) — the slice of customer deposits banks set aside as cash — could be a challenge after 7 pm. Currently, all outflows and inflows are considered while computing daily CRR position and any deficit is managed by accessing the marginal standing facility — RBI’s lending window to banks for overnight funds which functions till 7:30 pm.“RBI has tried to address the liquidity issue after the IBA letter. However, the borrowing post market hours there will be capped. In an extreme case of outflow, say over a long weekend, this could lead to an erosion in a bank’s liquidity coverage ratio (which is linked to a bank’s asset-liability mismatch). Also, as of now drawing liquidity from RBI during the night is not yet automated,” said a banker. But sections said bankers’ fears are unfounded as NEFT is primarily used by retail customers and large outflows are unlikely. Also, some of the IT companies supporting the banks are finding it difficult to put in place an appropriate solution.At a point when multiple payment solutions like debit card, credit card, UPI and IMPS exit, bankers are baffled by the regulator’s decision to introduce a 24x7 NEFT facility. Banks had earlier requested RBI to extend NEFT hours in phases and decide on further extension based on the experience.“Such borrowing from RBI by a bank from where fund is moving out has a cost. On the other hand, the bank which is receiving fund and has to credit the account may not have a profitable avenue to deploy the money, but may have to nonetheless pay interest on fund that is credited,” said a banker.

from Economic Times https://ift.tt/35FxDOg