RBI Releases Current Account Rules For Borrowers Availed Credit Facilities

The Reserve Bank of India (RBI) announced on October 29 that banks may establish current accounts for borrowers who have taken out credit in the form of cash credit (CC) or overdraft (OD) from the banking system. There are no restrictions on banks opening current accounts or providing CC/OD facilities to borrowers with a banking system exposure of less than Rs 5 crore, subject to obtaining an undertaking from such borrowers that they will notify the bank(s) as and when the credit facilities they have obtained from the banking system meet Rs 5 crore or more. Borrowers having a banking system exposure of Rs 5 crore or more can open current accounts with any of the banks with which they have a CC/OD facility, as long as the bank has at least 10% of the banking system's exposure to that borrower, according to RBI.

RBI also claimed in a statement yesterday that "Further, other lending banks may open only collection accounts subject to the condition that funds deposited in such collection accounts will be remitted within two working days of receiving such funds, to the CC/OD account maintained with the above-mentioned bank maintaining current accounts for the borrower. In case none of the lenders has at least 10% exposure of the banking system to the borrower, the bank having the highest exposure may open current accounts. Non-lending banks are not permitted to open current accounts."

According to the RBI's August 2020 circular, borrowers who do not use the banking system's CC/OD option must maintain current accounts. Banks will be required to review all accounts on a semi-annual basis, particularly with regards to the banking system's exposure to the borrower and the bank's share of that exposure.

RBI also clarified that 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 the bank's share in that exposure, to ensure compliance with these instructions. If there is a change in the exposure of banks or aggregate exposure of the banking system to the borrower which warrants the implementation of new banking arrangements, such changes shall be implemented within a period of three months from the date of such monitoring. Banks may implement the necessary changes within one month from the date of this circular. The compliance position thereon will be reviewed thereafter.

Further, banks are permitted to open/ maintain the following accounts, without any restrictions placed in terms of the above-mentioned circular dated August 6, 2020:

• Inter-bank accounts
• Accounts of All India Financial Institutions (AIFIs), viz., EXIM Bank, NABARD, NHB, and SIDBI
• Accounts opened under specific instructions of Central Government and State Governments
• Accounts attached by orders of Central or State governments/regulatory bodies/Courts/investigating agencies etc. wherein the customer cannot undertake any discretionary debits

According to RBI, the above-mentioned guidelines are implemented following a review and feedback received from the Indian Banks' Association (IBA) and other stakeholders.