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Reserve Bank of India revises current account rules with Rs 5 crore credit limit

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Reserve Bank of India revises current account rules with Rs 5 crore credit limit

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The Reserve Bank of India (RBI) on Friday issued revised guidelines for banks to open new checking accounts as long as the client has a credit exposure of less than Rs 5 crore, either in cash or in credit. discovered with the respective bank.

The move is to impose better credit discipline and control the diversion of funds by opening multiple accounts, while at the same time allowing banks and businesses some operational freedom.

Furthermore, all non-lending banks have been prohibited from opening checking accounts. The central bank has been tightening current account rules for a long time, in fact as early as 2000, to achieve better credit discipline.

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At the beginning of this year, banks had until the end of October to implement the new rules related to checking accounts. Since last December, the RBI prohibited banks from opening checking accounts for any borrower who has a line of credit / cash overdraft (CC / OD) with any bank.

In August 2020, the RBI decided to limit the opening of checking accounts only to those customers who have not made use of any line of credit from any bank and that all transactions should be routed only through the CC / OD account.

These rules came into force from December 2020. In a new circular issued on Friday, the RBI said that it has been decided to allow banks to open checking accounts only for those borrowers who have made use of CC / OD services worth up to 5 million rupees.

However, there will be no restrictions if a borrower agrees to inform the bank when his credit line reaches Rs 5 crore or more. The circular has been issued after taking into account comments from the Banking Association of India and other stakeholders.

Borrowers with lines of credit of Rs 5 crore or more can maintain checking accounts at any of the banks with which they have a CC / OD line, as long as the bank has at least 10 percent of the banking system’s exposure. to that borrower. Other lending banks may open only collection accounts and not checking accounts, and these will be subject to certain conditions.

The conditions include that the funds deposited in such collection accounts (escrow accounts) will be remitted within two business days after receipt of said funds to the CC / OD account maintained with the bank that maintains the checking accounts for the borrower.

In the event that none of the lenders has at least 10 percent exposure from the banking system to the borrower, the bank with the highest exposure can open checking accounts, according to the circular.

Providing clarity in the context of circulars dated July 2, 2015, December 5, 2018, November 2, 2020, December 14, 2020, and August 4, 2021, the RBI said that borrowers who do not use the CC / OD facility of banks will continue to maintain checking accounts. However, banks can open / maintain, without restrictions, interbank accounts with financial institutions across India such as Exim Bank, Nabard, NHB and Sidbi.

The permission will also be applicable for accounts opened under specific instructions of central / state governments, accounts attached by orders of central / state governments / regulatory bodies / courts / investigative agencies in which the client cannot make any discretionary debits, according to the circular .

According to the RBI, banks will monitor all accounts regularly, at least semi-annually, specifically with respect to the banking system’s exposure to the borrower and their share of that exposure, to ensure compliance with these instructions.

A circular issued by the RBI in July 2015 had prohibited banks from opening checking accounts for clients who have made use of CC / OD facilities. It had also prohibited banks from allowing borrowers to use the credit line as margin to make use of any non-fund-based credit line.

The central bank made a serious effort to curb current account misuse in August 2020. The subsequent rules, which came into effect in December 2020, posed short-term operational challenges for banks and businesses.

More than two decades ago, in its 2000 circular, the RBI warned banks that when opening checking accounts, they should obtain a statement from the account holder that they did not enjoy any credit facility with any other bank. If so, the person had to give details of the lines of credit.

In its 2004 circular, the RBI had said that some banks were not following its rules and were facilitating the diversion of funds. They were asked not to open current accounts for entities that enjoy credit facilities, without obtaining a NOC from the lending banks.

Later, in 2015, the central bank again raised concerns that advised banks to use the Central Repository of Information on Large Credits (CRILC) to verify whether the client was using credit from another bank.

Despite repeated notifications, some banks did not follow the necessary protocols, eventually prompting the RBI to introduce stricter rules in August last year.

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Reserve Bank of India revises current account rules with Rs 5 crore credit limit

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