Current Account ‘Discipline’: RBI Extends Deadline to 31st October
Moneylife Digital Team 04 August 2021
Paying heed to outrage on social media and requests by banks, the Reserve Bank of India (RBI) has extended the deadline to 31st October from 31 July 2021 for implementation of its guidelines for banks on current account opening. 
 
In a notification, RBI says, “Banks will be permitted time till 31 October 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 30 September 2021," RBI added.
 
In the notification in August 2020 (titled "Opening of Current Accounts by Banks - Need for Discipline"), RBI had said that banks that do not have cash credit or overdraft (CC/OD) facilities cannot open a current account for any borrower. Further, if a bank has an exposure of less than 10% of loans of the banking system to a borrower, all debits to their accounts can only be routed through a bank which has 10% or more of the loan exposure. 
 
Banks are free to open CC/OD accounts for companies that have loans to the banking system of Rs5 crore or less but for exposures between Rs5 crore and Rs50 crore, only lending banks can open current accounts and non-lending banks can only open an escrow account. For loans above Rs50 crore, only the lending banks can open an account and other banks cannot even issue a guarantee for these loans. 
 
RBI has not changed the guidelines but reiterated them saying banks must apply it in letter and spirit. It has also exempted cash replenishment agencies from the guidelines along with white label ATM companies. 
 
"Banks shall put in place a monitoring mechanism, both at head office and regional or 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," RBI says.
 
Last week, Moneylife wrote about how rules have caused a lot of pain to small- and medium-sized businesses over the past one year as banks are either freezing or closing current accounts citing the August 2020 RBI circular. Social media is full of posts recounting tragic stories of the sudden freezing and closure. 
 
More shockingly, many banks are freezing or closing current accounts stating that the customer has availed CC or overdraft OD facilities from some other bank and, hence, it needs to close the account. 
 
Many businesses and organisations have been raising the issue with RBI since August last year; but, so far, there is no respite. For example, the All-India Transporters Welfare Association (AITWA) sent a letter to RBI on 15 December 2020 and followed it up with an email on 15 July 2021, highlighting the issues being faced by truckers from across the country.
From the plain reading of the RBI circular, it appears that the central bank wants to regulate and keep track of all CC and OD facilities availed by customers. It also wants banks to maintain records of bifurcation of the working capital facility into loan component and cash credit component. 
 
However, while doing so, RBI ended up with increasing pains for current account-holders and, for now, there seems to be no respite. 
 
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