The Reserve Bank of India on Friday, October 29, 2021, relaxed current account norms for bank exposures below Rs 5 crore, allowing lenders to open a current account, cash credit and overdraft facilities without any restrictions. The regulator has asked banks to implement the changes within a month.
The RBI said in its guidelines, “for borrowers, where the exposure of the banking system is below Rs 5 crore, there is no restriction on the opening of current accounts or on the provision of cash credit and overdraft facility by banks, 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 Rs 5 crore or more.”
For borrowers where the exposure exceeds Rs 5 crore, shall continue to maintain a current account with any bank having cash credit or overdraft facility, provided that the bank has at least 10 per cent of the exposure of the banking system to that borrower.
The banking regulator allowed banks to open and maintain inter-bank accounts, all accounts of institutions such as EXIM Bank, NABARD, NHB and SIDBI, accounts linked by orders of the central or state government and investigative agencies without any restriction.
In August last year, the banking regulator had introduced new rules for the opening of current accounts, mandating that a borrower can only have a current account with a bank that accounts for at least 10 per cent of his total borrowings.
While banks were given three months to comply with the new strictures, delays in implementation forced the Reserve Bank to extend the deadline till July 31. The deadline was further extended to October 31, after thousands of current account closures in the past few months caused inconvenience to many firms and small business owners.
RBI also clarified that other lending banks would be allowed to open only collection accounts and the money deposited in those accounts would be remitted within two days of receiving the funds. The central bank also said that if any lender does not have at least 10 per cent exposure to the banking system to the borrower, the bank having the highest exposure can open current accounts.
RBI had observed that despite existing guidelines and penal provisions, borrowers are diverting and siphoning money by opening multiple current accounts with different banks. While the intention is clear, the need to bring in credit discipline has created a lot of disruption.
RBI’s new rules aim to discipline current account usage to efficiently monitor cash flow and control siphoning of funds by regulating the already over-regulated sector.
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