In some respite for lakhs of affected borrowers, the Reserve Bank of India (RBI) on Wednesday allowed banks three more months’ time to implement its new current account rules.
CNBC-TV18 had earlier reported that lakhs of borrowers, large and small, were facing disruptions after banks closed down or froze their current accounts to comply with RBI’s July-end deadline.
RBI, via a notification issued today, said that it had received requests from banks to allow some more time to resolve the operational issues while implementing the circular in letter and spirit. Therefore, to ensure the instructions were implemented in a non-disruptive manner, it has now allowed time till October 31, 2021, to implement the provisions of the circular.
“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. 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 September 30, 2021,” RBI said.
The regulator further said that all banks must put in place a monitoring mechanism, both at head office and regional/zonal office levels to ensure non-disruptive implementation of the circular. This is to ensure that customers are not put to undue inconvenience during the implementation process, RBI said.
“Banks shall ensure that the contents of the circular are implemented in letter and spirit without causing undue inconvenience to their borrowers. All other instructions contained in the circulars ibid remain unchanged,” the apex bank reiterated in its notification.
What the new rules say
Under the new guidelines, no bank can open current accounts for customers who have availed credit facilities from the banking system.
In the case of borrowers who have not availed of cash credit or overdraft (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.
In the case of borrowers who 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. Even non-lending banks can open current accounts for such borrowers though only for collection purposes.
The restriction applies to borrowers in case they avail of CC/OD facility since all operations that can be carried out from a current account can also be carried out from a CC/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 where exposure of the banking system is Rs 50 crore or more, banks are required to put in place an escrow mechanism. Accordingly, current accounts of such borrowers can only be opened/maintained by the escrow managing bank.
The instructions were issued in order to enforce credit discipline among the borrowers as well as to facilitate better monitoring by the lenders. For this purpose, the regulator said a graded approach had been prescribed on opening and operating current accounts and CC/OD facilities. Banks were required to implement these instructions in a non-disruptive manner while keeping the bonafide business requirements of the borrowers in mind.
Disruption caused by sudden closing of current accounts
Due to a flurry of current account closures by banks to meet the RBI deadline, these customers, largely businessmen/traders and entrepreneurs, were unable to make and receive payments. Many expressed their angst over social media, even seeking government intervention to prevent the disruption they were facing.
What are current accounts used for?
Current accounts work best for traders and entrepreneurs who need to access their accounts frequently. Unlike savings accounts, current accounts earn no interest on the deposits made. A current account also offers the account holder the facility of overdraft. When you withdraw more money from the account, than is actually there, then your account is said to be overdrawn. In the case of a savings account, banks neither offer nor allow overdraft facilities, whereas, this facility is provided with a Current Account. The minimum balance requirement for such accounts is also high.
(Edited by : Bivekananda Biswas)
First Published: IST