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Stressing on the need for discipline, the Reserve Bank of India (RBI) disallowed banks from opening current accounts for customers who availed cash or overdraft facilities. The RBI notification consisted of the revised instructions on the opening of current accounts by banks.
Table of Contents
The RBI had stated that the use of multiple operating accounts by borrowers, both current and cash /overdrafts, had been seen to be prone to vitiating credit discipline. It further said that the checks and balances put in place in the extant framework for opening current accounts had been found inadequate. Therefore the RBI decided to revise the guidelines that will help in bringing appropriate safeguards.
The main objective of this move by RBI is to ensure that the borrowers direct their payments to/ from a current account with the bank that has the largest exposure to the borrower rather than having more than one current accounts across banks.
Instructions on opening current accounts are as follows:
There is no restriction on the amount or the number of credits in the collection account, but debits in these accounts will be limited to the purpose of remitting the proceeds to the escrow accounts.
The banks must not route any withdrawal transaction from term loans taken by the borrower through current accounts, and funds from term loans should be remitted directly to the goods and services supplier.
Expenses incurred by the borrower for day-to-day operations must be routed through the cash credit or overdraft account, in case the borrower has a cash credit or overdraft account, else it should be through a current account.
Guidelines for conditions to avail CC or OD facility are as mentioned below:
All borrowers that have a working capital facility bifurcated into loan component and cash credit component must maintain balances at an individual bank in all cases, including consortium lending.
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