Guidelines for Implementation of the circular on Opening of Current Accounts by Banks
Please refer to circulars DOR.No.BP.BC/7/21.04.048/2020-21 dated August 6, 2020, DOR.No.BP.BC.27/21.04.048/2020-21 dated November 2, 2020 and DOR.No.BP.BC.30/21.04.048/2020-21 dated December 14, 2020 on Opening of Current Accounts by Banks – Need for Discipline.
2. The instructions were issued vide the above circulars in order to enforce credit discipline amongst the borrowers as well as to facilitate better monitoring by the lenders; and for this purpose, a graded approach had been prescribed on opening and operating of current accounts and CC/OD facilities. Banks were required to implement these instructions in a non-disruptive manner while keeping the bonafide business requirements of the borrowers in mind.
3. It is reiterated that:
a) In case of borrowers who have not availed of CC/OD facility from any bank, there is no restriction on opening of current accounts by any bank if exposure of the banking system to such borrowers is less than ₹5 crore.
b) In case of borrowers who have not availed of CC/OD facility from any bank and the exposure of the banking system is ₹5 crore or more but less than ₹50 crore, there is no restriction on lending banks to such borrowers from opening a current account. Even non-lending banks can open current accounts for such borrowers though only for collection purposes.
c) The restriction applies to borrowers in case they avail of CC/OD facility since all operations that can be carried out from a current account can also be carried out from a CC/OD account as banks in a CBS environment follow a one-bank-one-customer model as against a one-branch-one-customer model.
4. We have in the meantime received requests from the banks for some more time to resolve the operational issues while implementing the circular in letter and spirit. Therefore, in order to ensure that the instructions are implemented in a non-disruptive manner, it has been decided that:
a) Banks will be permitted time till October 31, 2021 to implement the provisions of the circular. This extended time line shall be utilised by banks to engage with their borrowers to arrive at mutually satisfactory resolutions within the ambit of the circular. Such issues which banks are unable to resolve themselves shall be escalated to Indian Banks’ Association (IBA) for appropriate guidance. Residual issues, if any, requiring regulatory consideration shall be flagged by IBA to the Reserve Bank for examination by September 30, 2021.
b) In terms of para 1(vii) of circular DOR.No.BP.BC.30/21.04.048/2020-21 dated December 14, 2020, accounts of White Label ATM operators and their agents are exempt from the provisions of the Current Account circular dated August 6, 2020. Since Cash-in-Transit (CIT) Companies/ Cash Replenishment Agencies (CRAs) essentially carry out a similar activity, the exemption would be applicable to these entities as well.
c) Banks shall put in place a monitoring mechanism, both at head office and regional/zonal office levels to monitor non-disruptive implementation of the circular and to ensure that customers are not put to undue inconvenience during the implementation process.
d) As has already been indicated in FAQ no 6 of circular DOR.No.BP.BC.30/21.04.048/2020-21 dated December 14, 2020, banks are not permitted to open current accounts for borrowers who have availed agricultural/ personal Overdraft (OD) or OD against deposits.
5. Banks shall ensure that the contents of the circular are implemented in letter and spirit without causing undue inconvenience to their borrowers. All other instructions contained in the circulars ibid remain unchanged.
DOR.CRE.REC.35/21.04.048/2021-22 dated 04th August 2021
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Further Update on 29th October 2021
Opening of Current Accounts by Banks – Need for Discipline
Please refer to our circular DOR.No.BP.BC/7/21.04.048/2020-21 dated August 6, 2020 on the captioned subject and associated circulars thereon1.
2. On a review and taking into account feedback received from Indian Banks’ Association (IBA) and other stakeholders, it has been decided that banks may open current accounts for borrowers who have availed credit facilities in the form of cash credit (CC)/ overdraft (OD) from the banking system as per the provisions below:
(i) For borrowers, where the exposure of the banking system is less than ₹5 crore, there is no restriction on opening of current accounts or on provision of CC/OD facility by banks, subject to obtaining an undertaking from such borrowers that they shall inform the bank(s), as and when the credit facilities availed by them from the banking system reaches ₹5 crore or more.
(ii) In respect of borrowers where exposure of the banking system is ₹5 crore or more, such borrower can maintain current accounts with any one of the banks with which it has CC/OD facility, provided that the bank has at least 10 per cent of the exposure of the banking system to that borrower.
Further, other lending banks may 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 above-mentioned bank maintaining current accounts for the borrower. In case none of the lenders has at least 10% exposure of the banking system to the borrower, the bank having the highest exposure may open current accounts. Non-lending banks are not permitted to open current accounts.
3. It is clarified that borrowers not availing CC/OD facility from the banking system shall continue to maintain current accounts as per para 1(v) of the above mentioned circular dated August 6, 2020, as hitherto.
4. Further, banks are permitted to open/ maintain the following accounts, without any restrictions placed in terms of the above-mentioned circular dated August 6, 2020, subject to meeting the conditions specified as at para 2 of DOR.No.BP.BC.30/21.04.048/2020-21 dated December 14, 2020:
a)Inter-bank accounts
b)Accounts of All India Financial Institutions (AIFIs), viz., EXIM Bank, NABARD, NHB, and SIDBI
c)Accounts opened under specific instructions of Central Government and State Governments
d)Accounts attached by orders of Central or State governments/regulatory body/Courts/investigating agencies etc. wherein the customer cannot undertake any discretionary debits
5. With reference to FAQ 18 of the circular dated December 14, 2020, in line with FAQ 9, banks maintaining collection accounts are permitted to debit fee/charges from such accounts before transferring the funds to the escrow account/CC/OD account of the borrower.
6. With reference to para 3 of the circular dated December 14, 2020 read with FAQ 17, it is clarified that banks shall monitor all accounts regularly, at least on a half-yearly basis, specifically with respect to the exposure of the banking system to the borrower, and the bank’s share in that exposure, to ensure compliance with these instructions. If there is a change in exposure of banks or aggregate exposure of the banking system to the borrower which warrants implementation of new banking arrangements, such changes shall be implemented within a period of three months from the date of such monitoring.
7. Banks may implement the necessary changes within one month from the date of this circular. The compliance position thereon will be reviewed thereafter.
8. A consolidated self-contained circular on the subject will be issued soon.
9. All other instructions contained in the circulars ibid remain unchanged.