Finance Ministry Lifts Embargo On Grant Of Govt Business To Private Banks

The government has lifted the embargo on private sector banks to undertake Central and state government business, which is still a forte of the public sector banks and three large private players in a limited way -- ICICI Bank, Axis Bank and HDFC Bank.

With the permission, all banks would be allowed to conduct government-related banking transactions such as taxes and other revenue payment facilities, pension payments, small savings schemes, etc.

This step is expected to further enhance customer convenience, spur competition and higher efficiency in the standards of customer services, a government statement announcing the changes said.

It will also give additional business opportunity to the banks to earn from taking up huge government business.

Private sector banks, which are at the forefront of imbibing and implementing latest technology and innovation in banking, will now be equal partners in development of the Indian economy and in furthering the social sector initiatives of the government, the statement said.

Earlier in a tweet, the office of Finance Minister Nirmala Sitharaman said: "Embargo lifted on grant of govt business to private banks. All banks can now participate. Private banks can now be equal partners in development of the Indian economy, furthering govt's social sector initiatives, and enhancing customer convenience."

With the lifting of the embargo, there is now no bar on RBI for authorisation of private sector banks (in addition to public sector banks) for government business, including government agency business. The government has conveyed its decision to the RBI.

Under the agency model, banks earn a fee while working as an agent of the Central bank for collecting revenues as well as disbursing payments towards various state-run schemes.

The latest move is yet another acknowledgment of the key role played by the private sector in the overall economic development of the country. Keeping this in mind, the government has also announced a mega privatisation policy in this year's Budget that will see it exiting from several public sector enterprises.

While the contours of the rules allowing private banks to take up government business is yet to be drawn up, it is expected that the interested banks would be taken up as the agents of the RBI. This would follow a recommendation by the Controller General of Accounts (CGA).