New Guidelines for Current Accounts: Borrowers with CC and OD Facilities

Current Account Guidelines for Borrowers with Cash Credit and Overdraft Facilities

In response to feedback from the Indian Banks’ Association (IBA) and other stakeholders, a review has led to new guidelines on the opening of current accounts for borrowers who utilize cash credit (CC) or overdraft (OD) facilities from the banking system. The following provisions apply:

Criteria for Opening Current Accounts

For Borrowers with Banking System Exposure Less than ₹5 Crore:
- Banks may open current accounts without restrictions on the provision of CC/OD facilities.
- Borrowers must provide an undertaking to inform banks if their total banking exposure reaches ₹5 crore or more.
For Borrowers with Banking System Exposure of ₹5 Crore or More:
- Borrowers can maintain current accounts only with one bank, which holds at least 10% of the total banking exposure to that borrower.

Additional Provisions for Lending Banks

Other lending banks can only open collection accounts. Funds deposited in these accounts must be transferred within two working days to the CC/OD account of the borrower maintained by the designated bank.
If no lending bank has at least 10% exposure, the bank with the highest exposure can open a current account.
Non-lending banks are not authorized to open current accounts.

Maintenance of Current Accounts Without CC/OD Facilities

Borrowers who do not utilize CC/OD services are allowed to maintain current accounts as specified under paragraph 1(v) of the circular dated August 6, 2020.

Unrestricted Accounts Permitted by Banks

According to paragraph 2 of DOR.No.BP.BC.30/21.04.048/2020-21 dated December 14, 2020, banks may open and maintain the following accounts without restrictions:

Inter-bank accounts
Accounts for All India Financial Institutions (AIFIs) such as EXIM Bank, NABARD, NHB, and SIDBI
Accounts opened under special directives from Central or State Governments
Accounts involved in government orders/regulatory mandates where the customer cannot make discretionary debits

Fee Deductions from Collection Accounts

As per FAQ 18 of the circular dated December 14, 2020, which is in alignment with FAQ 9, banks are allowed to debit fees or charges from collection accounts before transferring funds to escrow/CC/OD accounts of borrowers.

Monitoring of Accounts

Referencing paragraph 3 of the circular dated December 14, 2020, and FAQ 17, it is emphasized that banks must monitor all accounts at least semi-annually. This includes evaluating both the borrower’s exposure to the banking system and the bank's share in that exposure. Should any changes arise in the exposure that necessitate new banking arrangements, these adjustments should be enacted within three months from the monitoring date.

Implementation Timeline

Banks are required to implement these changes within one month from the release date of this circular. Compliance will be assessed following the implementation period.

Future Consolidation of Circulars

A self-contained consolidated circular on this subject will be issued shortly.

Retained Instructions

All other instructions from previous circulars remain unchanged.