RBI extends the deadline for shifting the current account till October

New rules regarding Changes in opening and operating current Account and CC/OD facilities do not apply to borrowers who have availed agricultural/ personal Overdraft (OD) or OD against deposits” RBI said.

The Reserve Bank on Wednesday allowed time to banks till October 31 to implement changes on the current account front, following reports of small businesses being hit with account freezes in the last few days. The initial deadline had ended on July 31, leading to thousands of current accounts being closed or frozen by banks. Lenders had requested the RBI for some more time to resolve the operational issues in implementing the provisions of the August 2020 circular in letter and spirit. In the original circular, the RBI had said a customer can open a current account with any bank if he has not availed of CC/overdraft facility from any bank, and the exposure to the banking system is less than Rs 5 crore. If the exposure is between Rs 5 crore and Rs 50 crore, the lending bank can allow the customer to open a current account as well. However, for large borrowers above Rs 50 crore exposures and having multiple bank exposures, the current account and cash credit/overdraft facility has to be with a single bank. In essence, a customer has to have a single current account, and that too with the bank with which it has a loan facility running. The current account has to be run through an escrow mechanism, and “current accounts of such borrowers can only be opened/maintained by the escrow managing bank, as per the original circular. In the case of multiple banks, the borrower and the banks can decide mutually where to keep the current account.

According to reports many firms avail of loans from public sector banks while current accounts are maintained with private banks or foreign banks. RBI wanted to stop this. The restriction applies to borrowers in case they avail of CC/OD facility since all operations that can be carried out from a current account can also be carried out from a CC/OD account as banks in a CBS environment follow a one-bank-one-customer model as against a one-branch-one-customer model, it said. By limiting such accounts within one bank, the firms are better monitored, it added.

 “This extended timeline shall be utilised by banks to engage with their borrowers to arrive at mutually satisfactory resolutions within the ambit of the circular and such issues which banks are unable to resolve themselves shall be escalated to Indian Banks’ Association (IBA) for appropriate guidance. Residual issues, if any, requiring regulatory consideration shall be flagged by IBA to the Reserve Bank for examination by September 30, 2021, it said. The regulator further informed that it was in no mood to change the proposed rules, but would only allow for stretching the timeline for smoother implementation. The changes are aimed at enforcing credit discipline amongst the borrowers as well as to facilitate better monitoring by the lenders and for this purpose, a graded approach had been prescribed to banks on opening and operating of current accounts and cash credit/overdraft CC/OD facilities, said the regulator. Banks were required to implement these instructions in a non-disruptive manner while keeping the bonafide business requirements of the borrowers in mind.  

“As has already been indicated in FAQ no 6 of circular DOR.No.BP.BC.30/21.04.048/2020-21 dated December 14, 2020, banks are not permitted to open current accounts for borrowers who have availed agricultural/ personal Overdraft (OD) or OD against deposits,” RBI said. The circular further clarified that

“In terms of para 1(vii) of circular DOR.No.BP.BC.30/21.04.048/2020-21 dated December 14, 2020; accounts of White Label ATM operators and their agents are exempt from the provisions of the Current Account circular dated August 6, 2020. Since Cash-in-Transit (CIT) Companies/ Cash Replenishment Agencies (CRAs) essentially carry out a similar activity, the exemption would be applicable to these entities as well.”