RBI Guidelines for Current Accounts: Key Impacts Explained
5 min read | about 2 months ago
How the RBI Guidelines Impact Current Account Holders
The Reserve Bank of India (RBI) has issued a circular pertaining to opening of current accounts in India. This contains a set of regulatory guidelines that the Regulator has issued, and they directly impact current account opening and operating mechanisms. The main objective behind the circular is enforcement of stringent credit discipline among all borrowers in the system, while boosting overall monitoring by lenders. Let us take a closer look at these guidelines below.
Current Account Guidelines As Per the RBI
Here are some of the main current account guidelines as per the RBI’s directives.
Calculation of Aggregate Exposure
Based on the RBI’s current account guidelines, banks will now have to calculate the aggregate exposure of potential and existing customers. This can be done by using data from various credit bureaus.
Opening a Current Account
Banks may open current accounts for those customers whose aggregate credit exposure availed from the banking system is below ₹ 5 crore threshold. This will be done after carrying out due diligence based on the policies approved by the boards of the respective financial institutions.
Guidelines for Non-Lending Banks
Bank/s, that have not provided CC/OD facility/ies to customer requesting for current account, cannot open current account of that customer or collection account. However, Non Lending Bank/s may open Collection Account of the customer if the customer has availed other credit facilities but not CC/OD. The account balances in the Collection account cannot be used for collateral or loan repayments.
Non-Compliance with Regulations
Not complying with the circular on current accounts may lead to the suspension of current account privileges along with hefty penalties/fines and further legal action.
KYC Regulations
The RBI has made it compulsory to follow stringent KYC regulations for verifying the identities of current account holders.
Monitoring of Transactions
Banks have to stringently monitor all account transactions on a regular basis, ensuring that they are in compliance with the RBI guidelines.
Statutory Compliances
The RBI has prioritized compliance with multiple regulatory rules and statues, including FEMA or the Foreign Exchange Management Act, 1999.
Escrow Managing Bank
For those borrowers with aggregate exposure of Rs. 50 crore or higher, only the escrow managing bank is authorized to open and maintain current accounts.
Term Loan Routing
Term loan payments cannot be routed through CC/OD account, with the exception of specific situations like where payment destination is unidentifiable.
Cash Credit & Overdraft
Banks should carefully assess the genuine requirement for overdraft and cash credit facilities given to businesses. They should comply with risk management and other norms in this regard.
Conclusion
It is clear that businesses have to comply with all the guidelines that apply to them. They should focus on maintaining proper financial records and conduct audits regularly, while cooperating with banking authorities on several matters. They should also consult banks for more guidance on maintaining compliance in order to avoid freezing of accounts, penalties, and other restrictions. In case you are a business owner who has a current account, you may consider taking legal advice regarding these guidelines and whether you’re compliant with them.
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