RBI bars banks from opening current accounts for serial borrowers

12 Aug 2020


Reserve Bank of India (RBI) has barred banks from opening current accounts for customers who have availed credit facilities in the form of cash credit (CC)/ overdraft (OD) from other lenders in the banking system, in an effort to prevent borrowers from routing loans taken from banks through current accounts elsewhere.

The decision is taken to stop companies and large borrowers from transferring funds unfairly from term loans through current accounts in other banks. 
Lender banks, mostly PSU banks, will handle the current accounts of borrowers who, in turn, will not be able to divert money for other purposes through the current accounts of other banks, mainly private and foreign banks.
Banks are free to open current accounts of prospective customers who have not availed of any credit facilities from the banking system, subject to necessary due diligence as per their board approved policies, RBI said.
RBI has asked banks to monitor all current accounts and CC/ODs regularly, at least on a quarterly basis, specifically with respect to the exposure of the banking system to the borrower, to ensure compliance with is instructions.
In short, banks should not route drawal from term loans through current accounts. Since term loans are meant for specific purposes, the funds should be remitted directly to the supplier of goods and services. Expenses incurred by the borrower for day to day operations should be routed through CC/OD account, if the borrower has a CC/OD account, else through a current account.
For existing current and CC/OD accounts, RBI has asked banks to ensure compliance within a period of three months.
RBI had earlier announced an easing of rules for loan restructuring t cover borrowers whose payments have been overdue for up to 60 days, against the present rule that only those borrowers who were making regular repayments on their loans, and were not overdue for more than 30 days as of 31 March 2020 are eligible for the restructuring scheme. 
The restructuring will enable borrowers to reschedule their loan payment, or get a limited loan repayment holiday, or lower interest rates on their existing loans depending on the agreement they reach with their bank(s).
The officials said that there are quite a few genuine loan accounts, which were showing signs of stress even before the outbreak of COVID-19, and these could be considered for the restructuring. 

Business History Videos

History of hovercraft Part 3...

Today I shall talk a bit more about the military plans for ...

By Kiron Kasbekar | Presenter: Kiron Kasbekar

History of hovercraft Part 2...

In this episode of our history of hovercraft, we shall exam...

By Kiron Kasbekar | Presenter: Kiron Kasbekar

History of Hovercraft Part 1...

If you’ve been a James Bond movie fan, you may recall seein...

By Kiron Kasbekar | Presenter: Kiron Kasbekar

History of Trams in India | ...

The video I am presenting to you is based on a script writt...

By Aniket Gupta | Presenter: Sheetal Gaikwad

view more