The Reserve Bank of India aims to boost its credit discipline. Therefore, on October 29, 2021, it introduced new RBI guidelines for opening current accounts. By reviewing and revising the RBI guidelines for current account with the bank, it has altered a few changes. Now, the borrowers can create a current account without limitations on the provision of OD or CC facilities (overdraft and cash credit) by the banks with exposures of below Rs. 5 crore.
Let’s delve into the following post that demonstrates an insightful understanding of the revised notification presented by the RBI.
Key Aspects of the New RBI Guidelines on Current Account Opening
The following are the new rules and revisions set by the Reserve Bank of India for creating new accounts:
- The revised circular has removed some restrictions on accounts and financial institutions in India.
- It has made some specific alterations to simplify the rules of creating new accounts for borrowers with bank exposures below Rs 5 crore.
- Under specified instructions, the RBI now allows lending banks to open an account without any further restrictions. These banks can also provide cash credit and overdraft facilities.
- The non-lending banks are not eligible to create current RBI accounts.
Overdraft Facility and Cash Credit: What Borrowers Can Avail While Opening Current RBI Accounts
If the customer wants to reap the advantages of cash credit and overdraft facilities, they need to understand the basic instructions provided by RBI.
Borrowers with Exposure of More Than or Equal to Rs. 5 Crore
According to the RBI guidelines on current account opening, borrowers whose exposure is more than or equal to Rs 5 crore to RBI’s system should learn the following details:
- These borrowers can maintain their current accounts.
- They can get the overdraft facility or cash credit.
RBI must have a minimum of 10% of the overall exposure of the banking system to them.
Borrowers with Exposure of Less than Rs. 5 Crore
The revised guidelines state that borrowers with less than Rs. 5 crore of exposure to that banking system do not have any limitations. So they can open current accounts without restrictions. But these customers need to learn the basic guidelines before proceeding any further.
- Customers can expect to get overdraft facilities or cash credit from banks if the exposure is less than Rs. 5 crore.
- The borrower needs to inform the bank about the hike in the credit facility (if and when the credit facility rises above Rs. 5 crore).
What Are the Rules Created by the RBI in Relation to Other Lending Banks?
The lending banks can create collection accounts, provided the funds deposited in these accounts are remitted to the CC or OD account within 2 working days after they have been received.
If no lender has a minimum of 10 percent exposure to the borrower, the bank with the maximum can open current accounts.
The banks that maintain collection accounts can also debit charges and fees from these accounts before they transfer their funds to the escrow account, cash credit, or overdraft account of the borrower.
New Guidelines by RBI
Banks can maintain or open an account without any restrictions as of August 6, 2020’s RBI guidelines on current account opening. We have enlisted the types of accounts that banks can open or maintain:
- Accounts of AIFIs or All India Financial Institutions (NABARD, EXIM Bank, SIDBI, and NHB)
- Inter-bank accounts
- Accounts under specified guidelines of the state and central governments
- Accounts attached by orders of central or state governments, courts, investigating agencies, or regulatory bodies wherein customers do not have the permit to undertake discretionary debits
Conclusion
To sum up, RBI has continuously observed several borrowers to have siphoned and diverted funds by opening multiple current accounts with multiple banks. So, it has introduced new RBI guidelines for current account opening in order to eliminate malpractices.
FAQs on RBI guidelines for current account opening
1. Is it possible for a current account holder to opt-out of overdraft (OD) or cash credit (CC) facilities?
A borrower with a current account with the RBI can choose not to avail of overdraft or cash credit facility from its banking system. But in that case, the borrower needs to continue maintaining the current accounts according to the rules set by the RBI in the guidelines.
2. Who can open a current account with the RBI without any restrictions?
According to the RBI guidelines for current account opening, borrowers or banks (excluding the non-lending ones) with Rs. 5 crore or less exposure can open current accounts without any restriction.
3. What is the rule set by the Reserve Bank of India for opening current accounts?
The new rule highlights that borrowers can create current accounts with the banks with which they get the CC/OD (cash credit or overdraft facility). However, the bank should have a minimum of 10 percent of the banking system’s exposure to the borrower.