Author: root

The Reserve Bank of India has given banks three more months, till October 31, to implement the new rules on opening current accounts. This comes after thousands of small businesses across the country raised a cry after their current accounts were frozen on Monday, as banks rushed to comply with the RBI directive.

In August 2020 an RBI directive had said that banks cannot open current accounts for customers who have availed themselves of cash credit (CC) or overdraft (OD) from the banking system. While the central bank had given banks time until end-July to implement the new rules, many account holders were caught unawares.

Accounts frozen

Operations of many small businesses were disrupted as they found their project accounts and plant-wise current accounts frozen and they could not pay salaries and statutory dues in August.

On Wednesday, the RBI said banks should use the extended timeline to engage with their borrowers to arrive at a satisfactory solution within the ambit of the circular.

On issues that banks are unable to resolve by themselves, the RBI asked them to escalate it to the Indian Banks’ Association (IBA) for guidance. Residual issues requiring regulatory consideration should be flagged by the IBA to the RBI for examination by September 30, 2021.

Monitoring mechanism

The central bank asked banks to put in place a monitoring mechanism, both at head office and regional/zonal office levels to monitor non-disruptive implementation of the circular and to ensure that customers are not inconvenienced.

Besides maintaining cash credit/overdraft account with the lead bank in the consortium, businesses with pan-India operations also used to have relationships with other banks with either a strong presence in a specific geographical area or offering superior product/services.

But concerns over diversion of funds by borrowers via accounts outside the consortium prompted the RBI to clampdown on opening of CC/OD accounts. This was aimed at enforcing credit discipline amongst the borrowers as well as facilitating better monitoring by the lenders

The RBI, on Wednesday, reiterated that borrowers who have not taken CC/OD facility from any bank face no restriction in the opening of current accounts by any bank if the exposure of the banking system to such borrowers is less than ₹5 crore.

The restriction, according to the RBI, is because all operations that can be carried out from a current account can also be carried out via a CC/OD account as banks in a CBS environment follow a one-bank-one-customer model as against a one-branch-one-customer model.