The RBI has, on August 6, 2020, issued revised instructions to scheduled commercial banks and payment banks for opening current bank accounts with a view to improve credit discipline. Banks are required to comply with the revised instructions by November 5, 2020, in respect of all existing current, cash credit (‘CC’) and overdraft (‘OD’) accounts and monitor these accounts regularly. It bifurcates customers into those who have availed credit facilities in the form of CC or OD and those who have not.

The key takeaways from the revised instructions are:

i.      All transactions of customers who have availed CC or OD facilities will be routed through their CC or OD account and no current accounts will be opened for them;

ii.     If a bank’s exposure e., sum of sanctioned fund and non-fund based facilities, to a borrower is less than 10% of the exposure of the banking system to the borrower (‘Banks with exposure less than 10%’), credits will be freely permitted, however debits to the CC/OD account can only be for credit to the CC/OD account of that borrower with a bank that has 10% or more of the exposure of the banking system to that borrower, in each case subject to certain further conditions prescribed by the RBI;

iii.   If a bank has a share of 10% or more in the total exposure of the banking system to the borrower, it can provide CC and/or OD facility without requiring to comply with additional conditions applicable to Banks with exposure less than 10%;

iv.    If a customer has not availed CC or OD facility from any bank, a current account may be opened for a borrower, subject to satisfaction of specified conditions depending upon the extent of exposure of the banking system to the borrower;

v.     Bifurcation of working capital into loan and cash credit components is to be maintained at individual bank level, including consortium lending, in case of borrowers covered under the guidelines issued by the RBI dated December 5, 2018, on loan system for delivery of bank credit; and

vi.    Banks are directed to not route drawals from term loans through current account. Funds for term loans are to be remitted directly to the supplier of goods and services. Day to day expenses of the borrower are to be routed through CC or OD account, or through a current account if the borrower does not have a CC or OD account.