The Reserve Bank of India on Thursday 6th August 2020, said in a report to the banks that Current Accounts will not be opened for Customers who have availed Cash Credit or Overdraft Facilities. With a view to improve Credit Discipline, the Reserve Bank on Thursday barred Banks from Opening Current Accounts for Customers who have availed Cash Credit or overdraft Facilities stressing that there is need for Discipline on this Front.
The Central Bank said in a notification that rather than opening a new current account, all transactions should be routed through Cash Credit (CC) or Overdraft Account (OD). The Reserve Bank of India (RBI) did not specify the exact reasons for initiating such a move. It can be noted that in recent instances of fraud like the over Rs.4000 crore PMC co-operative Bank Scam, it was discovered that Multiple Accounts were opened. The Officials said that this move will avoid deceiving or tricking of the banking system and reduce the blind spots, which will ultimately lead to the protection of the depositor’s money.
The RBI Governor Shaktikanta Das on Thursday, reported that it is necessary to take appropriate measures for strengthening credit discipline of the banks and there are many concerns emanating from the use of multiple Accounts by borrowers which calls for the need for safeguards for opening of Such accounts by borrowers availing credit facilities from multiple banks.
Stating that there is a `need for discipline’ by the banks in opening current Accounts, the RBI said `no banks shall open Current Accounts for customers who have availed credit facilities in the form of Cash Credit (CC)/Overdraft(OD) from the banking system and all the transactions shall be routed through the CC/OD Account. The RBI also added that `Banks should not route drawal from term loans through Current Accounts. Since term loans are meant for specific purposes, the funds should be remitted directly to the supplier of Goods and Services. Expenses incurred by the borrower for day to day operations should be routed through CC/OD account, if the borrower has CC/OD account, else through a current account.
It can also be noted that there is a project to have a single customer ID for every entity’s banking needs which will help in the monitoring, but the same is not fully in place.
If a customer opens multiple accounts and there is no monitoring of end use of funds, there is a possibility that the same customer could indulge in maleficence by drawing down money from the same bank through a different account. There is a possibility that the money could be used to repay the first credit facility and keep using the same modus operandi which can potentially lead to a wider concern.
