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Friday, September 17, 2021

Non-compliant current a/cs: RBI extends closure deadline

In August 2020, the RBI had said banks with little or no loan exposure cannot open a current account for borrowers, and existing non-compliant accounts had to be frozen.

By: ENS Economic Bureau | Mumbai |
August 5, 2021 3:00:59 am
The RBI’s directive is aimed at cracking down on attempts by borrowers using current accounts at non-lending banks to siphon off funds.

The Reserve Bank of India (RBI) has allowed banks time until October-end to implement the new rules on current accounts issued in 2020 following requests from banks and borrowers. After the regulator had previously set a deadline of July 31, banks recently closed thousands of current accounts of borrowers to meet the deadline.

“This extended timeline shall be utilised by banks to engage with their borrowers to arrive at mutually satisfactory resolutions within the ambit of the circular,” the RBI said. 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 should be flagged by IBA to the Reserve Bank,” it said.

In August 2020, the RBI had said banks with little or no loan exposure cannot open a current account for borrowers, and existing non-compliant accounts had to be frozen. The central bank’s directive was aimed at cracking down on attempts by borrowers using current accounts at non-lending banks to siphon off funds. The RBI had said banks with less than 10 per cent of the banking system exposure to a particular borrower cannot open a current account.

Banks had recently informed current account holders to continue maintaining the cash credit or overdraft account with the branch they have taken the loan.

The central bank on Wednesday said the restriction applies to borrowers in case they avail of cash credit (CC) or overdraft (OD) facility since all operations that can be carried out from a current account can also be carried out from a CC or OD account as banks in a CBS environment follow a one-bank-one-customer model as against a one-branch-one-customer model.

In the case of borrowers who have not availed of CC/OD facility from any bank, there is no restriction on opening of current accounts by any bank if exposure of the banking system to such borrowers is less than Rs 5 crore, it said.

If borrowers have not availed of CC/OD facility from any bank and the exposure of the banking system is Rs 5 crore or more but less than Rs 50 crore, there is no restriction on lending banks to such borrowers from opening a current account, it said. Even non-lending banks can open current accounts for such borrowers though only for collection purposes, the RBI said.

“We have received requests from the banks for some more time to resolve the operational issues while implementing the circular in letter and spirit,” the RBI said. Therefore, in order to ensure that the instructions are implemented in a non-disruptive manner, it has been decided to extend the timeline for implementation, it said.

Hearing a batch of petitions against the RBI’s current accounts circular dated August 6, 2020, the Kerala High Court recently extended till August 12 the status quo on current accounts of a clutch of non-banking financial companies (NBFCs) in the state. According to a Crisil report, the RBI’s insistence on companies opening current accounts with banks is among the factors that has helped large lenders raise their shares of the competitive corporate banking market in 2020.

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