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RBI allows banks to open current accounts for borrowers availing credit from other banks

Banks will be allowed to open current accounts even if borrowers have availed credit facilities from other banks in from of cash credit and overdraft.

October 30, 2021 / 11:26 AM IST

Banks may open current accounts for borrowers who have availed credit facilities in the form of cash credit (CC)/ overdraft (OD) from the banking system, said Reserve Bank of India (RBI) on October 29 in a release.

The development comes after the RBI reviewed and took into account the feedback received from Indian Banks’ Association (IBA) and other stakeholders, it said.

The RBI in August 2020 had brought in the guidelines around restriction of current accounts opened by banks. These were to enforce credit discipline and check diversion of funds.

The central bank barred banks from opening current account for customers who have availed credit from other banks and all transactions to be routed through the CC/OD account. Additionally, 10 percent of the borrower's exposure and debits to the CC/OD can should only be for credit to the CC/OD account with a bank which has 10 percent or more exposure.

This was to check for diversion of funds and keeping the transaction activity within the consortium banks.

RBI in its new guidelines issued on October 29 said for borrowers with exposure of banking system less than Rs 5 crore there is no restriction on opening of current accounts, subject to an undertaking from the borrower.

Further, borrower with exposure over Rs 5 crore can maintain current accounts with any one of the banks with which it has CC/OD facility, provided that the bank has at least 10 per cent of the exposure of the banking system to that borrower, RBI said.

RBI clarified borrowers not availing CC/OD facility from the banking system shall continue to maintain current accounts as per August 2020 circular. Here, banks will have to 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, RBI said.

RBI said bank may implement the necessary changes within one month and compliance position will be reviewed thereafter.

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Tags: #RBI
first published: Oct 29, 2021 06:51 pm