RBI eases rules on opening current account: All you need to know

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The Reserve Bank of India (RBI), on Friday, relaxed the current account rules for borrowers with bank exposure of less than Rs 5 crore. This decision of the RBI will help a large number of small-size firms.  The banks can now open a current account or offer cash credit (CC) and overdraft (OD) facilities without any curbs for small businesses. The RBI took the decision based on the feedback from the Indian Banks’ Association (IBA) and other stakeholders.

What the Banks need to follow

According to the circular issued by the RBI, there will be no restrictions on opening of current accounts for borrowers whose exposure to the banking system is less than Rs 5 crore and there will be no curb on giving cash credit or overdraft facilities by banks. Banks have one month to make necessary changes.

However, the borrowers will have to inform the banks when their credit facilities reach Rs 5 crore or more. The borrowers are required to submit an undertaking to the banks in this regard.

The borrowers, whose exposure to the banking system is Rs 5 crore or more, can maintain their current accounts with one of the banks with which they have CC or OD facility. In such cases the bank should have at least 10% of the exposure to the borrower, according to the RBI circular.

The RBI further stated that other banks may only open collection accounts. This is allowed only if funds deposited in such accounts are transferred to the CC/OD account within two working days of receipt.

Current accounts cannot be opened by non-lending banks. Borrowers who do not use the CC/OD service will continue to have current accounts in accordance with the current guidelines.

Furthermore, banks will encounter no restrictions in opening and managing interbank accounts, which are accounts formed in accordance with particular instructions from the Central and state governments.

Banks must guarantee that these accounts are only used for authorized or specified transactions. Banks would also be required to mark these accounts in the core banking system for simple monitoring, the RBI revised guidelines mandate.

The RBI stated that banks must examine all accounts on a semi-annual basis, specifically for the banking system’s exposure to the borrower and the bank’s portion of that exposure.

If there is a change in the bank’s exposure to the borrower that necessitates new banking arrangements, the adjustments must be executed within three months of the monitoring date.