Reserve Bank revises current account norms with Rs 5 cr credit cap

 The Reserve Bank of India (RBI) on Friday issued revised guidelines to banks for opening new current accounts provided the customer has less than Rs 5 crore credit exposure, either in cash credit or overdraft facility with the respective bank.

The move is to enforce better credit discipline and to check fund diversion by way of opening multiple accounts, while at the same time allowing banks and businesses to have some operational freedom.

Besides, all non-lending banks have been barred from opening current accounts.

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The central bank has been tightening current account norms for long, in fact, as early as 2000, to bring about better credit discipline.

Earlier this year, banks were given time till the end of October end to implement the new norms related to current accounts.

From last December, the RBI banned banks from opening current accounts for any borrower who has a cash credit/overdraft (CC/OD) facility with any bank.

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In August 2020, the RBI decided to limit the opening of current accounts for only those customers who have not availed of any credit facility from any bank and that all transactions should be routed through the CC/OD account only. These norms came into effect from December 2020.

In a new circular issued on Friday, the RBI said it has been decided to allow banks to open current accounts for only those borrowers who have availed of CC/OD facilities worth up to Rs 5 crore.

However, there will not any restrictions if a borrower agrees to inform the bank when his or her credit facility reaches Rs 5 crore or more.

The circular has been issued after taking into account the feedback from the Indian Banks Association and other stakeholders.

Borrowers with Rs 5 crore or more credit facilities can maintain current accounts with any one of the banks with which it has a CC/OD facility, provided the bank has at least 10 per cent of the exposure of the banking system to that borrower.

Other lending banks may open only collection accounts and not current accounts, and the same will be subject to certain conditions.

The conditions include that funds deposited in such collection accounts (escrow accounts) will be remitted within two working days of receiving such funds to the CC/OD account maintained with the bank maintaining current accounts for the borrower.

In case none of the lenders have at least 10 per cent exposure of the banking system to the borrower, the bank having the highest exposure may open current accounts, the circular said.

Providing clarity in the backdrop of circulars dated July 2, 2015, December 5, 2018, November 2, 2020, December 14, 2020, and August 4, 2021, the RBI said that borrowers not availing CC/OD facility from banks shall continue to maintain current accounts.

However, banks are permitted to open/maintain, without any curbs, inter-bank accounts with all-India financial institutions like the Exim Bank, Nabard, NHB, and Sidbi.

The permission will also be applicable for accounts opened under specific instructions of central/state governments, accounts attached by orders of central/state governments/regulatory bodies/courts/ investigating agencies wherein the customer cannot undertake any discretionary debits, the circular said.

According to the RBI, banks shall 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 their share in that exposure, to ensure compliance with these instructions

A circular issued by the RBI in July 2015 had barred banks from opening current accounts for customers who have availed of CC/OD facilities. It had also banned banks from allowing borrowers to use the credit facility as a margin for availing any non-fund based credit facilities.

The central bank made a serious bid to curb the misuse of current accounts in August 2020. The subsequent norms, which came into force in December 2020, presented banks and businesses with near-term operational challenges.

Over two decades ago in its 2000 circular, the RBI advised banks that when opening current accounts, they should obtain a declaration from the account holder that he or she was not enjoying any credit facility with any other bank. If so, then the individual had to give particulars of the credit facilities.

In its 2004 circular, the RBI had said some banks were not following its norms and were facilitating fund diversion. They were asked not to open current accounts for entities that enjoy credit facilities, without obtaining an NOC from the lending banks.

Subsequently, in 2015, the central bank again flagged concerns advising banks to use the Central Repository of Information on Large Credits (CRILC) to verify whether the customer was availing credit from another bank.

Despite repeated notifications, some banks failed to follow necessary protocols, which finally led the RBI to bring in more stringent norms in August last year

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