RBI circular on Opening Current Bank Account

The Reserve Bank of India (“RBI”) on 14th December 2020 issued a circular directed to all Scheduled Commercial Banks and Payments Banks (and applicable to these banks only) wherein the RBI has issued a list of bank accounts which can be opened without any restrictions as was outline in the RBI circular dated 06th August 2020. The link to the circular is – https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11945&Mode=0

The list of such bank accounts shall be as follows:

  • Accounts for real estate projects mandated under the Real Estate (Regulation and Development) Act, 2016 for the purpose of maintaining 70% of advance payments collected from the home buyers.
  • Nodal or Escrow accounts of payment aggregators/prepaid payment instrument issuers for specific activities as permitted by Department of Payments and Settlement Systems (DPSS), Reserve Bank of India under Payment and Settlement Systems Act, 2007.
  • Accounts for settlement of dues related to debit card/ATM card/credit card issuers/acquirers.
  • Accounts permitted under FEMA, 1999.
  • Accounts for the purpose of IPO/NFO/FPO/share buyback/dividend payment/issuance of commercial papers/allotment of debentures/gratuity etc., which are mandated by respective statutes or regulators and are meant for specific/limited transactions only.
  • Accounts for payment of taxes, duties, statutory dues etc., opened with banks authorized to collect the same, for borrowers of such banks which are not authorized to collect such taxes, duties, statutory dues, etc.
  • Accounts of White Label ATM Operators and their agents for sourcing of currency.

These restriction free permissions shall be subject to the condition that the accounts are used for the permitted or specified transactions only.

Banks shall need to flag these accounts in the CBS for easy monitoring. Banks have also been advised to monitor all current accounts and CC/ODs regularly, at least on a half-yearly basis to ensure compliance with the instructions given in this regard in the RBI circular dated 06th August 2020, link to which is provided above in this article.

RBI has clarified a few Frequently Asked Questions in this regard, a few of which are as follows:

  • Banks shall no longer be required to obtain No Objection Certificate (NOC) as was advised earlier.
  • Banks may compute the aggregate exposure for the purpose of these guidelines based on the information available from Central Repository of Information on Large Credits, Credit Information Companies, National E-Governance Services Ltd. etc., and by obtaining customers’ declaration, if required.
  • All fund based and non-fund based credit facilities sanctioned by the banks and carried in their Indian books shall be included for the purpose of aggregate exposure.
  • The revised guidelines are applicable to all borrowers, not just entities as was the case with previous guidelines on obtaining NOC.
  • Banks are not permitted to open current accounts for borrowers who have availed any fund or non-fund-based credit in the form of overdraft facilities.
  • In case of proprietary firms, the aggregate exposure shall include all the credit facilities availed by him/her, for business purpose or otherwise.
  • In case bank’s exposure to the borrower is less than 10%, funds may be remitted to the account maintained with the bank having the highest share in the exposure of the banking system to the borrower. Credits and debits will be freely permitted in the said account. Alternatively, the borrower is free to avail working capital only in the form of WCDL/WCTL and open current accounts as per the provisions of paragraph 1(v) of the circular based on the aggregate exposure.
  • Banks may open a current account for receiving/monitoring cash flows of a specific project, provided the borrower has not availed any CC/OD facility for that specific project. Banks opening project specific current/escrow account shall ensure that cash flows coming in the account are from that project only.
  • Banks are free to open current accounts for borrowers having credit facilities only from NBFCs/FIs/Co-operative banks/Non-bank institutions. However, if such borrowers avail facilities from the banks covered under the guidelines, all the provisions of the circular shall be applicable.
  • For borrowers with multiple projects/multiple business units, banks may open multiple escrow accounts for monitoring of project-wise/unit-wise cash flows. Banks opening project specific current/escrow account shall ensure that cash flows coming in the account are from that project/unit only.
  • All lending banks should be part of the escrow agreement. The terms and conditions may be decided mutually by lending banks and the borrower. Borrowers shall be free to choose their escrow managing banks. Non-lender banks are not permitted to escrow accounts.
  • In cases where term loans are meant for purposes other than for supply of goods and services and where the payment destination is unidentifiable, banks may route such term loans through CC/OD or current accounts of the borrower opened as per the provisions of the circular. Banks shall ensure that where the payment destination is identifiable (i.e. refinance of existing debt, etc.), payment is made directly, without routing it through CC/OD accounts.
  • All banks, whether lending banks or other account holding banks, are required to monitor the accounts on regular basis as prescribed in the circular.
  • In case of change in exposure of banks/aggregate exposure of the banking system to the borrower, the borrowers shall be free to choose the bank(s) for the purpose of maintaining their operating current account/escrow account/CC/OD accounts within the overall framework of the circular. Further, banks will have to implement the new arrangements within a period of three months from the date of change in exposure.
  • Collections accounts can be debited only for transferring the funds to the escrow account of the borrower.

To read the full RBI circular, please click on the link.

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