RBI Relaxes Current Account Rules for Specific Accounts

The Reserve Bank of India (RBI) issued a circular on 6 August 2020 with strict rules for opening a current account by large borrowers. These rules provided that banks cannot open current accounts of customers who have availed an overdraft facility or cash credit facility and route transactions through these accounts. It also stated numerous tighter rules relating to the opening of the current account by businesses which obtain cash credit or do not pay interest.

On Monday, the RBI issued another circular exempting specific accounts from the rules and restrictions issued in August circular as mentioned above. The circular issued on Monday permits banks to open the specific accounts without placing any restrictions imposed on them in the August circular. These specific accounts are accounts stipulated under various statutes and instructions of other regulators or regulatory departments. 

The indicative list of the specific accounts as given in the circular are as follows – 

• Accounts for real estate projects for maintaining 70% of advance payments received from the house buyers as mandated under Section 4(2)(l)(D) of the Real Estate (Regulation and Development) Act, 2016.
• Accounts permitted under the Foreign Exchange and Management Act, 1999.
• The escrow or nodal accounts of prepaid instrument issuers or payment aggregators for specific activities permitted by the Department of Payments and Settlement Systems under the Payment and Settlement Systems Act, 2007.
• Accounts for IPO, FPO, NFO, dividend or buyback of share.
• Accounts for settlement of dues relating to debit/credit/ATM card issuers or acquirers.
• Accounts of White Label ATM Operators and their agents for sourcing of currency
• Accounts for payment of taxes, statutory dues, duties, etc. opened with banks authorised to collect it for borrowers of banks which are not allowed to collect such duties, taxes, statutory dues, etc.
• Payment, allotment of debentures, gratuity, issuance of commercial papers, etc. which are meant for specific or limited transactions only and mandated by respective regulators or statues.

The RBI has permitted exemption of rules provided in the August circular to the accounts mentioned above on a condition. The condition is that the banks opening the above-mentioned specific accounts should ensure that the usage of these accounts will be only for the permitted or specified transactions. 

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The banks will have to flag the specific accounts in the Core Banking Solution (CBS) for easy monitoring. The lenders to such borrowers can enter into arrangements or contracts with the borrowers to monitor the cash flows or periodic transfer of funds in these specific current accounts.

Further, the RBI also stated that the banks would monitor all current accounts, cash credit and overdrafts regularly. The banks need to monitor on a half-yearly basis, especially relating to the exposure of the banking system to the borrower and ensure compliance with the instructions contained in the August circular.

The circular issued by RBI in August aims at strengthening better repayment discipline of large borrowers. Since then, the RBI received several queries relating to that circular. Thus, the RBI reviewed the August circular and issued a circular on Monday in connection with it providing exemptions from the restrictions of opening current accounts to the specific accounts. This circular will come to effect from today. It contains the annexed clarifications to the queries along with the answers.

For any clarifications/feedback on the topic, please contact the writer at mayashree.acharya@cleartax.in