The Reserve Bank of India (RBI) on Wednesday gave banks three extra months to implement its new current account rules, providing some relief to lakhs of borrowers. In a statement issued today, the RBI stated that it had received requests from banks to give them more time to overcome operational concerns while following the circular to the letter. As a result, it has extended the deadline for implementing the circular’s provisions to October 31, 2021, in order to guarantee that the instructions are implemented in a non-disruptive way.
“Banks will use this extended timetable to engage with their borrowers in order to reach mutually suitable remedies within the scope of the circular. Such concerns that banks are unable to handle on their own will be referred to the Indian Banks’ Association (IBA) for assistance. IBA will flag any remaining issues that require regulatory attention to the Reserve Bank for investigation by September 30, 2021,” RBI said.
The regulator further stated that all banks must develop a monitoring mechanism at both the head office and regional/zonal office levels to ensure that the circular is implemented smoothly. This is to ensure that consumers are not inconvenienced unduly during the implementation process, according to the RBI.“Banks must guarantee that the circular’s provisions are followed to the letter and spirit without creating undue hardship to their borrowers. The apex bank stated in its notification that “all other instructions contained in the circulars ibid remain unchanged.”
What are the new rules?
According to the new rules, no bank can open current accounts for consumers who have used the financial system for credit.
There are no restrictions on banks opening current accounts for borrowers who have not used a cash credit or overdraft (CC/OD) facility from any bank if the banking system’s exposure to such customers is less than Rs 5 crore.
There is no restriction on lending banks from opening a current account for borrowers who have not used a CC/OD facility from any bank and whose banking system’s exposure is Rs 5 crore or more but less than Rs 50 crore. Non-lending banks can open current accounts for such borrowers, but exclusively for the purpose of collection.
The restriction applies to borrowers who use a CC/OD account because all operations that can be done with a current account can also be done
with a CC/OD account in a CBS environment because banks operate a one-bank-one-customer model rather than a one-branch-one-customer model.
Banks are expected to put in place an escrow mechanism for debtors with a banking system exposure of Rs 50 crore or more. As a result, only the escrow management bank can open/maintain current accounts for such borrowers.
The guidelines were published in order to instil credit discipline in borrowers and to make it easier for lenders to monitor their accounts. According to the regulator, a graduated approach to creating and operating current accounts and CC/OD facilities has been established for this reason. Banks were expected to carry out these instructions in a non-disruptive manner while considering the borrowers’ legitimate business needs.
Disturbance brought on by the sudden closure of current accounts
Customers, mostly businessmen/traders and entrepreneurs, were unable to make or receive payments due to a flurry of current account closures by banks to meet the RBI deadline. Many people expressed their dissatisfaction with social media and even asked the government to intervene to stop the chaos.
What is the purpose of a current account?
Traders and entrepreneurs who need to access their accounts regularly should use current accounts. Current accounts, unlike savings accounts, do not pay interest on deposits. A current account also allows the account user to use an overdraft facility. Your account is said to be overdrawn when you withdraw more money from it than is actually available. Banks do not offer or allow overdraft privileges with a savings account, but they do with a current account. The required minimum balance for such accounts is also quite substantial.
