Individual current accounts are growing popular today even though they do not carry any interest on the balance. So why the popularity?
Essentially, current accounts are being opened for reimbursement purposes for employees.
Banks do not wish to pay interest on funds that are deposited only for a few days unlike in the case of salary accounts where funds tend to stay a lot longer and more often than not, are as their name implies, "savings".
Current accounts were always popular among large corporate, which wanted to do away with the hassles of giving out cash to employees.
Lately this practice has seen increased interest among relatively smaller corporate entities as well.
The imposition of withdrawal tax by the government on daily cash withdrawals of over Rs 25,000 have further encouraged corporates to set up reimbursement accounts for their employees.
Anything from having to pay additional tax to the exchequer unless warranted of course!
Instead of having to go to the bank, withdrawing sizeable funds on a daily basis to meet conveyance allowance, and keep petty cash registers, corporate are asking their bankers to open individual reimbursement accounts.
These accounts have become very popular with corporates as they can then do away with the need to handle cash, keep a petty cash register or even a petty cash safe.
The old practice of having a cashier or a number of part-time cashiers especially in the beginning of the month to pay individual employees the cash component is soon becoming a thing of the past.
"In one go, the old hassle of handling cash has gone and in its place have come the automated use of ATMs for cash withdrawals," said Amresh Acharia, vice president and head, liabilities, HDFC Bank.
A lot of corporates have gone in for ATMs at their office premises, thereby facilitating their employees from having to go to the bank to withdraw cash. Corporate houses such as Tata, Birla, Reliance and Larsen & Toubro among a host of others have adopted this practice.
Individuals would never otherwise open current accounts on their own as there is no advantage in it, nor do you get interest.
However, as a large number of banks are tying up with corporates and offering zero-balance salary accounts to employees, individuals now are holders of current accounts.
Private sector banks such as HDFC, ICICI, UTI and IDBI as well as foreign banks such as ABN Amro and Citibank are some that offer the facility to top corporate houses.
"We are not looking at footfalls when we offer to set up an ATM at an individual office premises. Rather, the minimum monthly salary uploaded should be in the region of Rs 2-3 crore (Rs 20-30 million)," said Acharia.
It's also a good proposition for banks as it allows them a captured customer base, he added.
It is clearly a win-win situation for banks as this lessens the load at banks' branches.
"We find that many of branches at key commercial areas tend to be flooded with customers especially during lunch breaks. By setting up an ATM we tend to be able to control the number of customers," said a senior foreign bank official.
Employees equally gaining as an ATM in office premises enables them to withdraw cash at any point of time during the day.
"We often end up going during tea breaks when there is less of a rush at our bank's ATM," said a senior official at a Tata group company, which has a HDFC Bank ATM.
While all this is well, employees should take cognisance of the fact that reimbursement accounts, or current accounts rather carry no interest.
Hence, even if one does not need the funds at the beginning of the month, it does not augur them well to maintain a large balance in such accounts.
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