Hyderabad: The Reserve Bank of India (RBI) on Thursday imposed certain restrictions on opening of current accounts in commercial banks in order to strengthen credit discipline among borrowers and prevent diversion of funds.
“In view of the concerns emanating from use of multiple operating accounts by borrowers, both current accounts as well as cash credit (CC)/overdraft (OD) accounts, it has been decided to put in place certain safeguards for opening of such accounts for borrowers availing credit facilities from multiple banks,” said RBI governor Shaktikanta Das on Thursday while announcing the outcome of the August bi-monthly monetary policy review.
RBI said no bank shall open current accounts for customers who have availed credit facilities in the form of cash credit/overdraft from the banking system.
The central bank said that all the regular expenses incurred for day-to-day operations for such customers should be routed through the cash credit/overdraft account. If they don’t have any cash credit/overdraft account, then a current account can be opened.
It looks like the aim behind such a move is to make sure that businesses route transactions through a single current account in a bank that has the largest exposure to the borrower, instead of having multiple such accounts across banks.
For those unaware, current account is a bank account for people who run companies and businesses. It is designed for carrying out day-to-day business transactions easily and do not carry a limit on the number of transactions which can be made.
Cash credit and overdraft facilities, meanwhile, are two types of short-term financing tools that banks provide to their customers.
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Cash credit is a short-term business loan usually granted by the lender in exchange of a collateral and is meant to fulfil the borrower’s working capital requirements. An overdraft facility, on the other hand, allows companies withdraw money from their accounts even with zero balance.
Now, in case of existing multiple accounts, RBI has said that a bank whose exposure to a borrower is less than 10% of the borrower’s total exposure of the banking system can freely permit credits (receipt of amount) to the borrower’s CC/OD account in that bank, but debits (removal of funds) would only be allowed for moving funds to the other CC/OD account in the bank that has more than 10% exposure of the banking system to that borrower.
‘Exposure’ means total sum of sanctioned fund-based and non-fund based credit facilities to a borrower.
In case there is more than one bank having 10% or more of the exposure of the banking system to that borrower, the bank to which the funds are to be remitted may be decided mutually between the borrower and the banks, added RBI.
Additionally, RBI asked all banks to monitor all current accounts and CC/ODs regularly, at least on a quarterly basis, specifically with respect to the exposure of the banking system to the borrower, to ensure compliance with these instructions.
Also, banks have been asked to ensure compliance with the instructions regarding existing current accounts within a period of three months.
(ETV Bharat Report)
