RBI Announces Guidelines to Implement its Circular on Opening of Current Accounts by Banks

This Wednesday, the Reserve of India (RBI) announces important guidelines to implement its circular on opening current accounts by banks.  The Apex Bank has given banks time until the end of October to execute the new rules on current accounts issued in the year 2020. The Regulator had formerly set a deadline of 31^st July 2021. The RBI (Reserve Bank of India) has issued three circulars in the last year on opening current accounts by banks and OD or CC facilities. The circulars include instructions to implement credit discipline among the borrowers.

They were also intended at providing better supervision by leaders, and for this, the Reserve Bank of India has proposed a graded approach on operating & opening of current accounts by banks.

IBA (Indian Banks’ Association) – Who are they?

Indian Banks’ Association is an association of financial institutions, and Indian Banks was established on September 26, 1946, in Mumbai as a representative body of management of banking operating in India. With an early membership representing 22 banks in India in 1946, Indian Banks’ Association recently shows 201 banking companies running in India. Indian Banks’ Association was established for the development, coordination & strengthen of Indian banking and help the member banks in different ways comprising an implementation of new systems & adoption of standards among the members. Indian Banks’ Association is regulated by a managing committee, and the current managing committee includes one chairman, one honorary secretary, three deputy chairman, and twenty-six members.

Also, Read:RBI Overhauls Regulatory Restrictions on Loans and Advances

What are the New Rules that the Banks are required to implement on the Opening of Current Accounts?

Following are the new rules that the Banks are required to implement on Opening of Current Accounts:

1. In the instance of borrowers who have not benefited from the OD or CD facility from any bank and the revelation of the banking system is Rs. 5 crores or more but less than Rs. 50 crores, and there is no restriction on lending banks to such borrowers from the opening of current accounts. Even non-lending banks can open current accounts for such borrowers while only for the collection ideas;
2. In the instance of borrowers who have not benefited from the CC or OD facility from any bank, there is no limitation on the opening of current accounts by any bank if the revelation of the banking system to such borrowers is less than Rs. 5 crores;
3. The restriction applies to borrowers if they benefited from the CC or OD facility since all activities that can be executed from a current account can also be executed from a CC or OD account as banks in a CBS environment follow a one bank one client model as against a one branch one client model;
4. Banks are not authorised to open current accounts for borrowers who have availed person overdraft (OD)/agricultural or OD against deposits.

Reason Behind the Extension of Deadline for Implementing the RBI Instructions on the opening of current accounts

The RBI (Reserve Bank of India) had received many requests from banks all over India to resolve operational problems while implementing the circular of the Reserve Bank of India. To make sure that the instructions are executed in a non-disruptive way, the Reserve Bank of India decided that:

1. The banks will be allowed to implement the circulars’ provision till 31^st October, 2021. The extended time can be used by the banks in appealing to the borrowers to land at mutually acceptable resolutions. The issues that the banks were unable to resolve themselves will be increased to the IBA (Indian Banks’ Association)^[1] for suitable guidance. If there are any remaining problems, they will be marked by the Indian Banks’ Association to the Reserve Bank of India for the examination by September 30.
2. The banks will be required to place an observing mechanism at the head office, regional, and zone-level officers to observe or supervise the non-disruptive implementation of the circular on the opening of current accounts and to make sure clients are not put under undue problem at the time of the implementation process.
3. Banks will make sure that the circular contents are implemented in spirit without causing inconvenience to the borrowers.

Conclusion

Current accounts are best for entrepreneurs and traders who require accessing their accounts regularly. Unlike saving accounts, current accounts earn zero interest on the deposit made. A current account also provides the account owner with the facility of overdraft. When you withdraw extra money from the account that is really there, then your account is said to be overdrawn. In the case of a saving account, banks neither provide nor permit overdraft facilities, while this facility is given with a Current Account.