In India many reforms are taking place. Another reform is to safeguard the banks money and reduce NPA of accounts. Business houses often take CC/OD facility from one bank, open current account in another bank and perform all the business transactions in that current account. To reduce this practice of operating business in multiple accounts, RBI issued notification on 6th August 2020 in which it announced new rules on opening of current account. The intention is to ensure that banks which give loans have idea of cash flows of company.
2. RBI instructions for opening current account
|If borrower has taken CC/OD Facility from any banks within banking system||If borrower has not taken CC/OD Facility and has taken credit facility(Sanctioned fund based+ Non-fund based credit facility) of following amounts –|
|No bank can open Current Account. All the transactions shall be routed through CC/OD Account.||Less than 5 crores||5 crore but less than 50 crore||50 crore more|
|Any bank can open current account but after taking Undertaking from borrower that he will inform bank as soon as credit facility availed by him exceeds Rs.5crores in banking system.||Lending banks can open current account and non-lending banks can open only collection account. Collection account can receive money which has to be paid into CC/OD account of lending bank on same day.||One lender bank has to open escrow account and only this bank can open current account. Other lender banks can open collection accounts but non-fund based facility cannot be given on balances in these accounts. Non-lending bank can’t open Current Account.|
3. Other instructions
1) For CC/OD facility, banks with over 10% exposure can open CC/OD accounts. Other lenders can have collection account but have to debit money only to CC/OD accounts of banks that have more than 10% exposure to the borrower.
2) RBI asked banks to monitor all current account and CC/ODs Accounts regularly so as to ensure compliance.
3) Term loans are taken for specific purpose. Therefore banks should remit the loan taken by borrower directly to supplier account instead of routing it through current accounts.
4) Expenses incurred by borrower for day to day operations should be routed through CC/OD account, if borrower has CC/OD account, else current account.
Above guidelines are brought to bring discipline into banking system and ensure that borrowers don’t hide their financial conditions with banks. There are also cases where a company can have more than 100 current accounts through its subsidiaries. These are very difficult follow. Often companies take a round trip of banking system through these many accounts to hide their transactions as a result of which lenders account becomes NPA. Banks are instructed to comply with these requirements within 3 months.
The above comments do not constitute professional advice. The Author can be reached at [email protected] My name is CA Divya Agrawal and I am Practising Chartered Accountant. I also upload educational videos in You tube and name of my channel is FINANCIAL TREE COMPANY. My aim is to help people in improving their financial health by spreading knowledge and love.