ICICI Securities: Current Account Discipline - Not An Easy Nut To Crack For Banks
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ICICI Securities Report
Even after a week of the Reserve Bank of India’s notification on current account (CA) discipline, our interactions with bankers suggest that quantifying the (positive/adverse) effect is a humungous task at this juncture as it calls for assessment on a case-to-case basis across business segments.
However, broader implications are clear:
1. the objective is to monitor the cash flows and end-use of funds to avoid diversion / frauds;
2.both CA (Rs 12 trillion) and cash credit/over draft (Rs 20 trillion) balance in absolute term may shrink (at least to the extent of an overlap - estimated at single digit proportion of CA);
3. ability to earn out of CAs will taper off;
4. realignment of CA ownership with lending facility is not so straight forward; some consolidation, some shakeout in relationship as disproportionate CA or overboard credit facility may not co-exist.
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