The RBI has reviewed and issued revised guidelines for opening of Current Accounts by banks to ensure discipline among borrowers.
As per this banks have been instructed not to open current accounts for customers who have availed credit facilities in the form of cash credit (CC)/ overdraft (OD) from the banking system and all transactions shall be routed through the CC/OD account.
The new rules will be applicable to existing current, CC/OD accounts with various banks.
“Where a bank’s exposure to a borrower is less than 10% of the exposure of the banking system to that borrower, while credits are freely permitted, debits to the CC/OD account can only be for credit to the CC/OD account of that borrower with a bank that has 10% or more of the exposure of the banking system to that borrower,” RBI said in a circular.
“Funds will be remitted from these accounts to the said transferee CC/OD account at the frequency agreed between the bank and the borrower,” it added.
Further, the credit balances in such accounts can not be used as margin for availing any non-fund based credit facilities.
In case there is more than one bank having 10% or more of the exposure of the banking system to that borrower, the bank to which the funds are to be remitted may be decided mutually between the borrower and the banks, the circular added.
Banks with exposure to the borrower of less than 10% of the exposure of the banking system can offer working capital demand loan (WCDL) / working capital term loan (WCTL) facility to the borrower where a bank has a share of 10% or more in the total exposure of the banking system to the borrower, it can provide CC/OD facility as hitherto.
In case of customers who have not availed CC/OD facility from any bank, banks may open current accounts.
For borrowers where exposure of the banking system is ₹50 crore or more, banks will be required to put in place an escrow mechanism.
Accordingly, current accounts of such borrowers can only be opened/maintained by the escrow managing bank, the circular said.
However, there is no restriction on opening of ‘collection accounts’ by lending banks subject to the condition that funds will be remitted from these accounts to the said escrow account at the frequency agreed between the bank and the borrower.
Further, the balances in such accounts can not be used as margin for availing any non-fund based credit facilities.
While there is no prohibition on amount or number of credits in ‘collection accounts’, debits in these accounts shall be limited to the purpose of remitting the proceeds to the said escrow account.
Non-lending banks shall not open any current account for such borrowers.
In case of borrowers where exposure of the banking system is ₹5 crore or more but less than ₹50 crore, there is no restriction on opening of current accounts by the lending banks.
However, non-lending banks may open only collection accounts.
In case of borrowers where exposure of the banking system is less than ₹5 crore, banks may open current accounts subject to obtaining an undertaking from such customers to the effect that customers shall inform the banks if and when the credit facilities availed by them from the banking system becomes ₹5 crore or more.
The current account of such customers, as and when the exposure of the banking system becomes ₹5 crore or more and ₹50 crore or more, will be governed by relevant the provisions, the circular said.
“Banks are free to open current accounts of prospective customers who have not availed any credit facilities from the banking system, subject to necessary due diligence as per their Board approved policies,” it added.
The RBI has asked banks to monitor all current accounts and CC/ODs regularly, at least on a quarterly basis, specifically with respect to the exposure of the banking system to the borrower, to ensure compliance.
As per the new guidelines bank are not allowed to route drawal from term loans through current accounts. Since term loans are meant for specific purposes, the funds should be remitted directly to the supplier of goods and services.
Expenses incurred by the borrower for day to day operations should be routed through CC/OD account, if the borrower has a CC/OD account, else through a current account.
As regards existing current and CC/OD accounts, “banks shall ensure compliance with the above instructions within a period of three months from the date of this circular,” it said.
