No current account for customers availing credit via cash, OD from banks
IANS 06 August 2020
The Reserve Bank of India (RBI) has come up with additional measures to curb the use of multiple operating accounts for loans wherein banks have been directed not to open current accounts for customers already availing credit in the form of cash or overdraft (OD).
During the video address post the monetary policy committee's meeting, RBI Governor Shaktikanta Das on Thursday noted that while permitting the lending institutions to provide necessary relief to the borrowers through various measures, it is also considered necessary to take appropriate measures for strengthening credit discipline.
"Use of multiple operating accounts by borrowers, both current accounts as well as cash credit (CC)/OD accounts, has been observed to be prone to vitiating credit discipline. The checks and balances put in place in the extant framework, for opening of current accounts, are found to be inadequate," he said.
As such, it has been decided to address the above concerns through appropriate safeguards for opening of current accounts and CC/OD accounts for customers availing credit facilitiesfrom multiple banks, Das said.
"No bank shall 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," according to the RBI guideline.
It added that where a bank's exposure to a borrower is less than 10 per cent 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 per cent or more of the exposure of the banking system to that borrower.
"Funds will be remitted from these accounts to the said transferee CC/OD account at the frequency agreed between the bank and the borrower. Further, the credit balances in such accounts shall not be used as margin for availing any non-fund based credit facilities," he said.
In case there is more than one bank having 10 per cent 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.
It may be noted that banks withexposure to the borrower of less than 10 per cent of the exposure of the banking system can offer working capital demand loan (WCDL) or working capital term loan (WCTL) facility to the borrower, the guideline 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.
"Banks shall 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 with these instructions," the RBI guideline added.
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1 year ago
Sanction of any credit limit either CC/OD/TL to any business unit goes through respective accounts that control and help monitor credit discipline of the unit. Debit & Credit summations of respective A/ Cs reflect the end use of fund loaned to borrowers on the basis of parameters of Appraisal, Recommendation & Sanction of credit limits to borrower against acceptance of agreed terms & conditions envisaged in Arrangement Letter signed by borrower. So, the systems of the sanction itself is well within control of Banks. Further, credit is disbursed against Drawing Power against submission of Stock Statememt(CC Limit) on monthly basis to determine the fund to be released. All transactions are routed through the related accounts. It's never allowed to open a different CA to be used for credit related transactions. TL is sanctioned to acquire capital goods and its scheduled repayment programme is routed through CC A/C of the borrower. Any other mode of of operation implies clear departure of credit discipline. The instructions sound confusing.
1 year ago
A long overdue measure for checking credit discipline has been put in place. Banks were allowing parking funds in current accounts while the borrowing accounts of CC and OD remain overdue. The policy should have also included that such current accounts should not be opened with other banks when a unit borrows from another bank. We have seen quite a few dexterous entrepreneurs opening current accounts with banks other than the lending bank to deposit the cheques received from their debtors. This is clear credit indiscipline and needs to be checked.
1 year ago
No sensible banker opens a current account, as those dishonest borrowers avail credit limits with one bank and route all credits through another current account opened in a different bank, and monitoring of account becomes very difficult. This is not new, and every banker makes fundamental inquiries on such limits by Current account holder with other banks. This is primitive and preliminary tactics and the first step towards wilful default.
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