Today (02.11.2020), RBI announced that banks may ensure compliance with the instructions contained in their Circular dated August 6, is extended up to December 15, 2020. In its circular of August 6, RBI said in respect of the opening of current accounts banks shall comply with all the instructions contained therein the circular. For existing current and CC/OD accounts, the circular permitted banks to comply with their instructions contained in the above circular within a period of three months from the date of the circular i.e by November 5, 2020. Since many banks have sought clarification on operational issues regarding maintenance of current accounts already opened by the banks, it was decided by the Central Bank to clarify the issues separately by means of a FAQ, and meanwhile extend the time for compliance up to December 15, 2020, it said.
The instructions on opening of current accounts by banks have been reviewed and the revised by RBI and same was notified to all the banks for compliance through their circular dated August 6, 2020.
The summary of instructions is as under;
- No bank shall 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.
- Where a bank has a share of less than 10 percent in the total exposure of the banking system, the customer may be freely permitted to Credit (deposit) money to their CC/OD account. However, debits to such a CC/OD account can only be allowed for credit to the CC/OD account of that borrower with another bank that has 10 per cent or more of the exposure of the banking system to that borrower. The funds may be remitted to the transferee CC/OD account at the frequency agreed between the bank and the borrower.
- In the case of borrowers where exposure of the banking system is Rs 50 crore or more, banks are required to put in place an escrow mechanism. Consequently, current accounts of those borrowers can only be opened/maintained by the escrow managing bank. Nevertheless, lending banks can open the collection account and there is no restriction on the opening of ‘collection accounts’ subject to the condition that funds will be remitted from these accounts to the said escrow account at the frequency agreed between the bank and the borrower. Additionally, the balances in such accounts shall not be used as margin for availing any non-fund based credit facilities. Although, no prohibition on the amount or number of credits in ‘collection accounts’, debits in these accounts shall be limited to the purpose of remitting the proceeds to the said escrow account. Non-lending banks shall not open any current account for such borrowers.
- In the case of borrowers where exposure of the banking system is Rs 5 crore or more but less than Rs 50 crore, there is no restriction on the opening of current accounts by the lending banks. The non-lending banks may open only collection accounts as defined at para No.3 above.
- In case of borrowers where exposure of the banking system is less than Rs 5 crore, the current account may opened by banks subject to obtaining an undertaking from such customers to the effect that customers shall inform the bank(s), if and when the credit facilities availed by them from the banking system becomes Rs 5 crore or more. The current account of such customers, as and when the exposure of the banking system becomes Rs 50 crore or more and Rs 5 crore or more, will be governed by the provisions of para 3 and 4 respectively.
- In case there is more than one bank having 10 per cent 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.
- In case of working capital limits sanctioned under Loan Delivery System, Banks with exposure to the borrower of less than 10 per cent of the exposure of the banking system can offer working capital demand loan (WCDL) / working capital term loan (WCTL) facility to the borrower. Banks who have more than 10 percent exposure may also extend the facility as hitherto.
- The bifurcation of the working capital facility into loan component and cash credit component shall henceforth be maintained at individual bank level in all cases, including consortium lending.
- Banks should not route drawal from term loans through current accounts. Since term loans are meant for specific purposes, the funds should be remitted directly to the supplier of goods and services. Expenses incurred by the borrower for day to day operations should be routed through CC/OD account if the borrower has a CC/OD account, else through a current account.
- In the case of customers who do not enjoy any CC/OD facilities from the banking system, banks are free to open current accounts of prospective customers subject to necessary due diligence as per their Board approved policies.