RBI vide Notification No. DOR.No.BP.BC/7/21.04.048/2020-21 dated 06th August 2020 has intimated all the scheduled banks to prohibit certain loan account holders from opening new current accounts as well as maintaining their existing current accounts. In order to comply with this Notification, the due date of which was July 31st 2021, many of the banks had frozen umpteen number of current accounts on the due date itself which had put many small businesses across the country in peril. RBI therefore vide its Circular No. DOR.CRE.REC.35/21.04.048/2021-22 dated 4th August 2021 has further extended the due date for implementing the above notification by 3 months till 31st October 2021.
Following are the prescribed loan-account holders and the restrictions imposed on them in opening/maintaining current accounts:
- CC / OD Account – A borrower who has availed Cash Credit (CC)/Overdraft (O/D) facility is totally prohibited from opening/maintaining current account
- Other than a CC / OD Account – If a person who has availed any credit facility other than CC/OD facilities, opening/maintaining of current accounts by them shall be subject to following
Where the aggregate amount of credit facilities availed is less than 5Cr – Current account can be opened subject to the undertaking from the borrower.
Where the aggregate amount of credit facilities availed is between 5Cr and 50 Cr – Current account can be opened only by the lenders. However non-lenders can open collection accounts.
Where the amount of credit facilities availed above 50 Cr – Current account can be opened only under escrow mechanism. Only lenders can open collection account. Non lending banks shall not open any current accounts.
Restrictions on giving CC/OD facility by the banks:
Where a bank’s exposure to the borrower is 10 per cent or more of the bank’s aggregate exposure, such banks can provide to such borrower CC/OD facility and that can be operated normally. However if such borrower has CC/OD facility in any other bank, the exposure of which is less than 10% of the bank’s aggregate exposure, the said bank should ensure that the debits to such account can only be used for remittance of funds to the CC/OD account of that Bank which has 10% or more of the exposure of the banking system.
Applicable for: Banks and Persons operating current account, OD account and CC account.
Action required: Loan account holders are required to take necessary steps to route their entire banking transactions in those permitted cash credit/ O/D / Current Accounts before 31st October 2021.
Banks are required to take necessary actions and monitor/intimate the customer accounts in advance to comply with the RBI guidelines.
Co-authored by Sreevidya B and CA Arun Jose