The
Reserve Bank of India‘s (
RBI) decision to revise norms to allow banks open current accounts for only those borrowers, who have availed of CC/OD facilities worth up to Rs 5 crore is causing headaches for banks and customers.
From last December, the RBI banned banks from opening current accounts for any borrower who has a cash credit/overdraft (CC/OD) facility with any bank.
Earlier this year, banks were given time till the end of October to implement the new norms related to current accounts.
Accordingly, banks had closed current accounts of mostly small borrowers while big accounts were converted into CC/OD accounts or collection accounts.
All over again
Now with RBI revising the guidelines, banks will have to KYC (know your customer) all over again and open these accounts. Also, most customers would have not kept current accounts with only one bank.
The RBI move is to enforce better credit discipline and to check fund diversion by way of opening multiple accounts, while at the same time allowing banks and businesses to have some operational freedom.
In August 2020, the RBI decided to limit the opening of current accounts for only those customers who have not availed of any credit facility from any bank and that all transactions should be routed through the CC/OD account only.
The revised norms
Borrowers with Rs 5 crore or more credit facilities can maintain current accounts with any one of the banks, with which it has CC/OD facility, provided the bank has at least 10 per cent of the exposure of the banking system to that borrower. Other lending banks may open only collection accounts and not current accounts, and the same will be subject to certain conditions.
The conditions include that funds deposited in such collection accounts (escrow accounts) will be remitted within two working days of receiving such funds to the CC/OD account maintained with the bank maintaining current accounts for the borrower.
In case none of the lenders have at least 10 per cent exposure of the banking system to the borrower, the bank having the highest exposure may open current accounts, the circular said.
Providing clarity in the backdrop of circulars dated July 2, 2015, December 5, 2018, November 2, 2020, December 14, 2020, and August 4, 2021, the RBI said that borrowers not availing CC/OD facility from banks shall continue to maintain current accounts. However, banks are permitted to open/maintain, without any curbs, inter-bank accounts with all-India financial institutions like the Exim Bank, Nabard, NHB, and Sidbi.
The permission will also be applicable for accounts opened under specific instructions of central/state governments, accounts attached by orders of central/state governments/regulatory bodies/courts/ investigating agencies wherein the customer cannot undertake any discretionary debits, the circular said.
According to the RBI, banks shall monitor all accounts regularly, at least on a half-yearly basis, specifically with respect to the exposure of the banking system to the borrower, and their share in that exposure, to ensure compliance with these instructions.
A circular issued by the RBI in July 2015 had barred banks from opening current accounts for customers who have availed CC/OD facilities. It had also banned banks from allowing borrowers to use the credit facility as a margin for availing any non-fund based credit facilities.
The central bank made a serious bid to curb the misuse of current accounts in August 2020. The subsequent norms, which came into force in December 2020, presented banks and businesses with near-term operational challenges.