Tag: bank exposures

The Reserve Bank of India on Friday eased current account rules for bank exposures less than Rs 5 crore, allowing lenders to open current account, cash credit and overdraft facilities without any restriction. The regulator asked banks to implement the changes within one month.

“For borrowers, where the exposure of the banking system is less than Rs 5 crore, there is no restriction on opening of current accounts or on provision of CC/OD facility by banks, subject to obtaining an undertaking from such borrowers that they shall inform the bank(s), as and when the credit facilities availed by them from the banking system reaches Rs 5 crore or more,” the RBI said in its guidelines.

For borrowers where the exposure is more than Rs 5 crore, will continue to maintain current accounts with any one of the banks with which they have cash credit or overdraft facility, provided that the bank has at least 10 per cent of the exposure of the banking system to that borrower.

The banking regulator also permitted banks to open and maintain inter-bank accounts, all accounts with institutions like EXIM Bank, NABARD, NHB, and SIDBI, accounts attached by orders of central or state government and investigative agencies without any restrictions.

In August last year, the banking regulator had introduced new rules for opening of current accounts, which mandated that a borrower can have a current account with only the bank which accounts for at least 10% of his total borrowing.

While banks were given three months to adhere to the new strictures, delay in implementation had forced the Reserve Bank to extend the deadline till July 31. The deadline was further extended to October 31, after thousands of current accounts were closed in the last few months, inconveniencing many firms and small business owners. SBI alone is said to have closed more than 60,000 such accounts.

The RBI also clarified that other lending banks will only be allowed to open collection accounts and the money deposited in those accounts will be remitted within two days of receiving the funds. The central bank also said that in case none of the lenders have at least 10% exposure of the banking system to the borrower, the bank having the highest exposure can open current accounts.

RBI’s new rules aim to discipline current account usage to monitor cash flows efficiently and control siphoning of funds by regulating an already over-regulated sector.

The RBI had observed that despite prevailing guidelines and penal provisions, borrowers have been diverting and siphoning off funds by opening multiple current accounts with different banks. While the intent is clear, the need to bring in credit discipline has caused a lot of disruption.