On 19.04.2022, the Reserve Bank of India (RBI) issued the consolidated circular for the opening and operation of current accounts and CC/OD accounts by banks. This circular consolidates earlier instructions issued by the Reserve Bank of India on the opening and operation of current accounts and CC/OD accounts intending to enforce credit discipline amongst the borrowers as well as to facilitate better monitoring by the lenders.
The provisions of this Circular are applicable only to current accounts and CC/OD accounts opened or maintained with all Scheduled Commercial Banks and All Payments Banks. However, it may be noted that banks are free to open current accounts (without any of the restrictions in this Circular) for borrowers having credit facilities only from NBFCs/FIs/co-operative banks/non-bank institutions, etc.
For borrowers where the aggregate exposure of the banking system is less than ₹5 crore, banks can open current accounts without any restrictions placed vide this circular subject to obtaining an undertaking from such customers that they (the borrowers) shall inform the bank(s), if and when the credit facilities availed by them from the banking system becomes ₹5 crores or more. Exposure under this Circular is defined as a "… sum of sanctioned fund-based and non-fund-based credit facilities availed by the borrower. All such credit facilities carried in their Indian books shall be included for the purpose of exposure calculation."
RBI has clarified that in the case of proprietary firms, the aggregate exposure shall include all the credit facilities availed by the borrower whether for business purposes or in a personal capacity.
Where the aggregate exposure of the banking system is ₹5 crore or more, borrowers are allowed to open current accounts with any one of the banks with which it has CC/OD facility, provided that the bank has at least 10% of the aggregate exposure of the banking system to that borrower. In case none of the lenders has at least 10% of the aggregate exposure, the bank having the highest exposure among CC/OD providing banks can open current accounts.
RBI has further instructed that other lending banks can open only collection accounts subject to the condition that funds deposited in such collection accounts will be remitted within two working days of receiving such funds, to the CC/OD account maintained, with the bank having at least 10 per cent of the aggregate exposure of the banking system maintaining current accounts for the borrower.
The balances in such collection accounts are not to be used for repayment of any credit facilities provided by the bank or as a collateral/margin for availing any fund or non-fund based credit facilities. However, banks maintaining collection accounts are permitted to debit fees/charges from such accounts before transferring funds to CC/OD accounts. It may be noted that RBI has clearly instructed that non-lending banks are not permitted to open current/collection accounts
Concerning the opening of current accounts for borrowers not availing of cash credit/overdraft facilities from the banking system, the following is specified. For borrowers where the aggregate exposure of the banking system is ₹50 crore or more, banks are required to put in place an escrow mechanism. Borrowers are free to choose any lending bank as their escrow-managing bank. All lending banks should be part of the escrow agreement. The terms and conditions of the agreement are to be decided mutually by lending banks and the borrower. Current accounts of such borrowers can only be opened/maintained by the escrow-managing bank.
Other lending banks can open ‘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. Further, balances in such collection accounts also cannot be used for repayment of any credit facilities provided by the bank, or as collateral/margin for availing any fund or non-fund based credit facilities. While there is no prohibition on the amount or the number of credits in ‘collection accounts’, debits in these accounts are limited to the purpose of remitting the proceeds to the said escrow account. It may be noted that non-lending banks are not permitted to open any current accounts for such borrowers.
In the case of borrowers where the aggregate exposure of the banking system is less than 5 crore, banks can open current accounts subject to obtaining an undertaking from them that they (the customers) shall inform the bank(s), if and when the credit facilities availed by them from the banking system reaches 5 crores or more. Banks are free to open current accounts of prospective customers who have not availed any credit facilities from the banking system, subject to necessary due diligence as per their board-approved policies.
Concerning the said circular, RBI has also given express instructions relating opening of cash credit/overdraft facilities in paragraph 3 in the circular as well as some exemptions to specific accounts. Banks are permitted to open and operate certain accounts without any of the restrictions placed in terms of paragraphs 1, 2 and 3 of the circular. These include:
The Circular has further stated that all banks, whether lending banks or otherwise, shall monitor all accounts regularly, at least on a half-yearly basis, specifically with respect to the aggregate exposure of the banking system to the borrower, and the bank’s share in that exposure to ensure compliance with the instructions in the circular.