RBI on August 06, 2020, barred banks from opening current accounts for customers who have availed cash credit or overdraft facilities from any bank. RBI has taken this measure with a view to improve credit discipline.
In a notification, the central bank said that rather than opening a new current account, all transactions should be routed through cash credit (CC) or overdraft (OD) account.
As per the notification, the new rules by the RBI are:
1. Henceforth, banks can’t open current accounts for borrowers who have a cash credit account with any other bank.
2. If borrowers don’t have any cash-credit account with any bank, they fall under 3 categories:
a) Borrowers having less Rs 5 crore loans from banks: For companies, any bank can open a current account
b) For borrowers with Rs 5-50 crore loans from banking system, only lending banks may open a current account; non-lending banks may only open collection accounts i.e. these accounts can receive money, which have to be paid into the cash-credit account of the lending bank. Since these have to be done usually on the same day, the collection accounts don’t offer any gains for the collecting bank
c) For borrowers with over 50 crore loans from the banking system, one lender bank has to open an escrow account and only this bank can open current account. Other banks can open collection accounts, but no non-fund based facility can be given on the balances in these accounts; non-lending banks can’t open current accounts.
3. For cash-credit and overdraft (CC/OD) facility, banks with over 10 percent exposure can open CC/OD accounts; other lenders can have collection accounts; but have to debit money only to CC/OD accounts of banks that have more than 10 percent exposure to the borrower.
On Thursday, RBI governor Shaktikanta Das said it is “necessary to take appropriate measures for strengthening credit discipline” and said there are concerns emanating from the use of multiple accounts by borrowers which calls for the need for safeguards for opening of such accounts by borrowers availing credit facilities from multiple banks.
The intention is to ensure that banks, which give loans have an idea of the cash flows of the company.
RBI has also directed lending banks to not use current accounts to route loans. Instead, since term loans are for specific purposes, banks must directly debit the funds to suppliers of goods and services to the borrower.
The intention clearly is to prevent the siphoning of funds by borrowers.
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