Current Account Opening Rules Changed: All you Need to Know

The Reserve Bank of India, or the RBI, on Friday, October 29, tweaked its guidelines for opening current accounts for bank exposures less than Rs 5 crore. Under the new rules, lenders are allowed to open current accounts for its borrowers without any restrictions. The same rule also applies to cash credit and overdraft facilities, according to a notification released by the central regulator in this regard. The Reserve Bank of India asked banks to implement these changes within a month.

“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(mentioned)  below,” the RBI said in the notification dated October 29, 2021.

“For borrowers, where the exposure of the banking system is less than  Rs 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 Rs 5 crore or more,” the banking regulator added in the notification.

In case of borrowers where the exposure is more than Rs 5 crores, the RBI said that they can maintain current accounts with any one of the banks with which it has CC/OD facility. However, the banking regulator introduced some conditions in this regard.

“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,” the RBI said in the guidelines. 

This move comes amid the RBI’s attempt to enforce better credit discipline, as well as to curb fund diversion by opening multiple accounts. This will, at the same time, make sure that banks and businesses have some freedom in regard to operations.

The banking regulator also stated in its October 29 notice that other lending banks may open only collection accounts, provided that the funds deposited will be remitted within two working days of receiving them.

“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 per cent exposure of the banking system to the borrower, the bank having the highest exposure may open current accounts,” the guidelines read.

However, the Reserve Bank of India did not permit non lending banks to open current accounts.

Meanwhile, it permitted  banks to open and maintain a number of accounts without any restrictions. These include nter-bank accounts, all accounts with institutions like EXIM Bank, NABARD, NHB, and SIDBI, accounts attached by orders of central or state government and investigative agencies.

The RBI had in August last year, put into place new rules regarding the opening of current accounts. In that case, it had mandated that a borrower can have a current account with just the bank that accounts at least for the 10 per cent share of his or her gross earnings.

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