The central bank on Thursday said that banks will not be allowed to open new current accounts for customers who have already availed themselves of credit facilities in the form of cash credit or overdraft and all transactions shall be routed through his existing account.
Cash credit (CC) is a short term loan, while overdraft (OD) is a type of funding where the customer can withdraw money by paying a certain interest even if his account balance is zero.
The move has been taken to instil credit discipline after the RBI noticed that many borrowers were circumventing rules by operating multiple current accounts and cash credit/overdraft accounts. In case of customers who have not availed of CC/OD facility from any bank, banks may open current accounts under specified rules: for borrowers where exposure to the banking system is Rs 50 crore or more, banks shall be required to put in place an escrow mechanism. Accordingly, current accounts of such borrowers can only be opened/maintained by the escrow managing bank.
However, there is no restriction on opening of “collection accounts” by lending banks if the funds are remitted from these accounts to the escrow account at the frequency agreed upon.
In case of borrowers where exposure to the banking system is Rs 5 crore or more but less than Rs 50 crore, there is no restriction on opening of current accounts by the lending banks.
Similarly, in cases exposure of the banking system is less than Rs 5 crore, banks may open current accounts subject to obtaining an undertaking that the customer will inform the bank, if and when the credit facilities availed becomes Rs 5 crore or more.
Where a bank’s exposure1 to a borrower is less than 10 per cent of the exposure of the banking system to that borrower, while credits are freely permitted, debits to the CC/OD account can only be for credit to the CC/OD account of that borrower with a bank that has 10 per cent or more of the exposure of the banking system to that borrower. Funds will be remitted from these accounts to the said transferee CC/OD account at the frequency agreed between the bank and the borrower.