The Reserve Bank of India (RBI) has issued revised guidelines to banks for opening new current accounts provided the customer has less than Rs5 crore credit exposure, either in cash credit (CC) or overdraft (OD) facility with the respective bank. The relaxation will benefit thousands of small businesses that were forced to close long-standing transaction accounts with banks due to earlier regulatory norms. Banks have been asked to implement the changes within one month.
The banking regulator has now eased some of the requirements of its current account guidelines for banks issued last year, allowing them to open credit facilities for State-run companies without any restrictions.
With the latest change, borrowers will be allowed to open current accounts without any restriction or on the provision of CC or OD facility by banks for borrowers with exposure of less than Rs5 crore.
However, this provision is 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 Rs5 crore or more.”
However, in cases, the notification says such borrowers can maintain current accounts with any one of the banks with which it has CC or OD facility, where the exposure is Rs5 crore or more, “provided that the bank has at least 10% of the exposure of the banking system to that borrower.”
“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 or OD account maintained with the above-mentioned bank maintaining current accounts for the borrower,” the RBI said.
If 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, the circular says.
RBI says borrowers not availing CC or OD facility from banks shall continue to maintain current accounts. However, banks are permitted to open and maintain, without any curbs, inter-bank accounts with all-India financial institutions like the Exim Bank, National Bank for Agriculture and Rural Development (NABARD), National Housing Bank (NHB), and Small Industries Development Bank of India (SIDBI).
The circular says the permission will also be applicable for accounts opened under specific instructions of the Union or state governments, accounts attached by orders of the Union or state governments, regulatory bodies, courts or investigating agencies where the customer cannot undertake any discretionary debits.
However, banks will have to monitor all accounts regularly, at least on a half-yearly basis, specifically concerning the banking system’s exposure to the borrower and the bank’s share in that exposure, RBI says.
The development comes after RBI considered the feedback received from Indian Banks’ Association (IBA) and other stakeholders.
In August 2020,
RBI came up with additional measures to curb the use of multiple operating accounts for loans where banks have been directed not to open current accounts for customers already availing credit in the form of cash or overdraft (OD). The norms came into effect from December 2020.
The norms limiting current accounts to lenders who have a credit relationship was introduced to prevent diversion of funds by borrowers. However, it also caused problems for some borrowers who had opened accounts with banks that could provide internet banking support that their lending banks could not.
Banks were citing the same circular titled ‘Opening of Current Accounts by Banks - Need for Discipline’ and freezing or closing current accounts stating that the customer has availed CC or OD facilities from some other bank and hence, it needs to close the account. Many businesses and organisations have been raising the issue with the RBI since August last year, and there was a
major backlash on the social media on this issue a couple of months back.
In August 2021, RBI had extended the deadline for implementing the new current account norms by another three months till October-end, following requests from banks.
