RBI asks states not to engage private banks for govt business

Giving a clear advantage to PSU banks, the Reserve Bank has asked state governments not to engage private banks for tax collection and other businesses, citing the practice of commission charged by them.

Confirming the development, a top official of Himachal Pradesh told PTI today that they got an advisory from the apex bank sometime back asking to desist from using private banks' services.

"We received an advisory from RBI to get it (services like tax collection through e-payment route) done through the public sector banks, as the internet banking is free," said Ajay Tyagi, principal secretary, planning and finance, Himachal Pradesh government.

The Himachal Pradesh government received the direction weeks before they were about to float tenders inviting bids from private sector banks for providing such services. 

However, comments could not be obtained from RBI on the direction to states to choose public sector banks over private sector for carrying out government business.

State Bank of India currently accounts for bulk of such transactions, but it was not clear how much government
business went to private sector banks.
 
Sources said the argument in favour of engaging public sector banks was that they have a wide network in rural and semi-urban areas -- needed for effective transaction of government business.

Private sector banks did not offer comments on the RBI directive.