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Guidelines on Opening of Current Account

To strengthen the credit discipline, vide circular no. RBI/2020-21/20 dated 6^th August 2020, the Reserve Bank of India has reviewed and revised the instruction on the opening of the Current Account with the Banks. The new guidelines are to be referred by the customers/ borrowers while opening current account with the banks. The key highlights of the revision of the guidelines are covered under the present article.

Highlights of the new guidelines

1. Banks will not open a current account for the customer who has already availed the credit facilities in the form of Cash Credit (i.e., CC) or Overdraft (i.e., OD).
2. The instruction for the opening of the current account for customers who have not availed the CC or OD facility are listed hereunder-
   • Instructions for borrowers, where the aggregate amount of credit facility availed is less than INR 5 Crores
     • The customer is required to give an undertaking to the bank stating that the bank will be informed about the increase in the total credit facility, as and when the credit facility availed by the customer becomes INR 5 Crore or more.
   • Instructions for borrowers, where the aggregate amount of credit facility availed is more than INR 5 Crores but less than INR 50 Crores-
     • • Any lending bank can open the current account without any restrictions.
       • A non-lending bank can open only collection account.
   • Instructions for borrowers, where the aggregate amount of credit facility availed is INR 50 Crores or more-
     • • • The bank will require a mandatory escrow mechanism.
         • In such a case, the current account will be opened by only the escrow managing bank or agent.
         • Any other lending banks can open only the collection account. However, the balances in such accounts cannot be used as margin for availing any non-fund based credit facility.
         • Non-lending banks shall not open any current account.

1. 3. Conditions to avail CC or OD facility-

Percentage of bank’s exposure to the borrower	Conditions
Less than 10% of the aggregate banking system exposure	·    The CC or OD facility can be availed, but can be used only for the credits. ·    The debit can be only to remit the funds to the CC or OD account of the borrower with a bank that has 10% or more of the banking system to that borrower.
More than 10% of the aggregate banking system exposure	·   The CC or OD facility can be availed.

4. Other important instructions-
   1. Banks are allowed to open the current account of any prospective potential customer. However, such customer shouldn’t have availed any CC or OD facility.
   2. Only if the borrower doesn’t have CC or OD account, the day to day expenses can be routed through the current account.
   3. Banks cannot route drawls from the term loans through the current account.
   4. Banks are required to regularly, at least once in a quarter, monitor all the current accounts.

Synopsis of revised guidelines

Particulars	Guidelines
Opening of the current account for a borrower with an already existing credit facility	Bank cannot open a current account
Opening of the current account for a borrower with a non-existing credit facility	Amount of Aggregate credit facility availed Corresponding condition/ guideline Less than INR 5 Crore Current account can easily be opened with only an undertaking. More than INR 5 Crore but less than INR 50 Crore ·   A lending bank can open a current account. ·   A non-lending bank can only open a collection account. More than INR 50 Crore Only the escrow managing lender or agent can open the current account.