FIDC Requested RBI to Review New Current Account Rules; Concerns on Routing All Transactions through CC/OD

On September 1, 2020, the umbrella body for non-banking financial companies (NBFCs), Finance Industry Development Council (FIDC) requested the Reserve Bank of India (RBI) to review the current account circular dated August 6, 2020 which stated that no bank is allowed to open current accounts for the customer who availed credit facilities in the form of cash and credit (CC) or overdraft (OD) from the banking system. 

Matter of Concern:

As per the circular, all transactions should be routed through the CC/OD account which is a matter of concern for FIDC as there are various current accounts of NBFCs and housing finance companies (HFCs) in the banks which may not have CC/OD facility extended to NBFC or HFC, and as per circular these current accounts will need to be closed. If closed, the loan repayments will suffer and also make tracking of business-wise collections and disbursals difficult for financial institutions.

Guidelines formed by RBI for Current Accounts:

On August 6, 2020, RBI issued revised guidelines for banks for opening current accounts in order to maintain discipline among the borrowers. In this regard the apex bank has mandated not to 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 to existing current, CC/OD accounts with various banks.

In Case, a borrower has not availed CC/OD facility from any Bank, then the latter may open Current Account as per its exposure to the former. The conditions for exposure are as under:

With Exposure of Rs.50 Crore or More:

• Mandatory Escrow Mechanism required
• Only Escrow managing bank/agent will open the Current account
• Other lenders can open Collection Accounts
• Balances in such accounts shall not be used as margin for availing any non-fund based credit facilities.
• Non-Lending banks shall not open current accounts.

Exposure More than Rs.5 Crores but less then Rs.50 Crores:

• Lending Bank : Can open Current Account
• Non Lending Bank : Can open only Collection Accounts.

Exposure Less than Rs.5 Crores:

Any Bank can open the Current Account subject to an undertaking that the customer will inform the bank(s) in case the exposure exceeds Rs.5 Crore.

Availed No Credit facilities from Banking System:

Can open Current Account

Key Points:

-Banks will monitor all current accounts and CC/OD accounts on quarterly basis to ensure the exposure compliance with above exposure requirements

-For existing Current and OD/CC accounts, banks shall ensure compliance to above guidelines within a period of 3 months i.e. latest by November 6, 2020.

Recent Related News:

Reserve Bank of India (RBI) has agreed to a USD 400 million currency swap facility for Sri Lanka, valid till November 2022. This will help Sri Lanka to meet its short-term international liquidity requirements and to boost its foreign exchange reserves following the economic crisis resulting from COVID-19.This Currency swap agreement was made under the South Asian Association for Regional Cooperation (SAARC) framework.

About Reserve Bank of India (RBI):
Headquarters– Mumbai, Maharashtra
Governor– Shaktikanta Das
Deputy Governors– 4 (Bibhu Prasad Kanungo, Mahesh Kumar Jain, Michael Debabrata Patra, one is yet to be appointed).