RBI Eased Current Account Rules for Bank Exposures Less than Rs 5 crore

On account of the feedback received from the Indian Banks’ Association (IBA), the Reserve Bank of India (RBI) has eased the Current Account (CA) rules for bank exposures less than Rs 5 crore and allowed borrowers to open CAs, Cash Credit (CC) and OverDraft (OD) from the banking system under certain provisions.

• Background: Earlier in August 2020, RBI revised the directions on opening and operating CAs by banks and restricted the banks from opening CAs for customers who have availed CC/OD.

Key Provisions for Opening CA:

i.Bank Exposure less than Rs 5 Crore: 

• RBI has issued no restriction on opening of CAs or on provision of CC/OD facility by banks for borrowers with less than Rs 5 crore exposure to the banking system.
• Condition: Those borrowers should inform the bank(s), as and when the credit facilities availed by them from the banking system reaches Rs 5 crore or more.

ii.Bank Exposure of Rs 5 Crore/more: 

• RBI has allowed borrowers with exposure of the banking system to Rs 5 crore or more to maintain CAs with any one of the banks with which it has a CC/OD facility.
• Condition: Only if the bank has at least 10 percent of the exposure of the banking system to that borrower.

Other Regulations:

i.RBI allowed other lending banks to open only collection accounts on the condition that funds deposited in such accounts are remitted within 2 working days of receiving these to the CC/OD account.

ii.The bank that are having the highest exposure is enabled to open CAs when no lender has at least 10 percent exposure to the borrower.

iii.Non-lending banks are not permitted to open CAs.

iv.RBI  has also permitted banks to open and maintain inter-bank accounts, all accounts with institutions like EXIM Bank, NABARD (National Bank for Agriculture and Rural Development), NHB (National Housing Bank), and SIDBI (Small Industries Development Bank of India), accounts attached by orders of central or state government and investigative agencies without any restrictions.

v.RBI permitted banks that are maintaining collection accounts to debit fees/charges from such accounts before transferring the funds to the escrow account/CC/OD account of the borrower.

vi.Banks were directed by RBI to monitor all accounts regularly (at least on a half-yearly basis) with respect to the exposure of the banking system to the borrower, and the bank’s share in that exposure, to ensure compliance with these instructions.

Note – Borrowers who are not availing of CC/OD facilities are allowed to continue maintaining CAs in line with current rules.

Recent Related News:

On August 04, 2021, the Reserve Bank of India (RBI) extended the timeline for Banks to implement the revised rules on opening current accounts to 3 months till October 30, 2021.

About OverDraft(OD):

i.It is a credit facility that will be provided by banks to allow customers to use or withdraw money from their savings or current account even when there is no balance or minimum balance up to the approved limit.

ii.OD will work like an approved loan but the banks will charge interest only on the utilized amount for the time when it is used.