Revised Guidelines for Opening Current Accounts by Banks – More Discipline

Reserve Bank of India vide its notification dated 6th August, 2020 has provided instructions on opening current accounts by banks.

• 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. The new rules will be applicable for the existing current, CC/OD accounts with various banks.
• Where a bank’s exposure (sum of sanctioned fund based and non-fund based facilities) to a borrower is less than 10 per cent of the exposure of the banking system, the credits will be freely permitted, debits to the CC/OD account can only be done if there is credit balance in the CC/OD account of that borrower with a bank that has 10 per cent or more of exposure. They can offer Working Capital Demand Loan (WCDL) / Working Capital Term Loan (WCTL) facility to the borrower. The credit balance cannot be used as margin for availing any non-fund based credit facilities.
• Where a bank’s exposure is more than one bank having 10 per cent or more of the exposure of the banking system to the borrower. Banks to which the funds will be remitted from these accounts will be decided mutually between the bank and the borrower.

In case of customers who have not availed CC/OD facility from any bank, banks may open current accounts for borrowers as under:

• Where exposure is ₹50 crore or more, banks shall be required to put in place an escrow mechanism. Current accounts can only be opened/maintained by the escrow managing bank. However, there is no restriction on opening of collection accounts by lending banks. Non-lending banks shall not open any current account for such 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.
• Where exposure of the banking system is less than ₹5 crore, banks may open current accounts subject to obtaining an undertaking from such customers that they shall inform the bank if their credit facilities availed by them becomes ₹5 crore or more.
• 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 OD/CC regularly, at least on a quarterly basis to ensure compliance.

Source: Reserve Bank of India