The Reserve Bank of India has limited the routing of funds from borrowers’ long-term loans through their current accounts, to avoid bank misusage. It is agreed not to move funds from term loans unfairly through current accounts of other banks to companies and large borrowers. The RBI has also prohibited banks from opening current accounts for customers who have availed credit facilities in cash-credit (CC) or overdraft (OD) from other banks.
The lender banks – mainly PSU banks – must now manage the borrower’s current accounts, which, for another reason, cannot redirect the money from the other banks’ current accounts, particularly private and foreign banks. As lending is meant for other purposes, the funds should be transferred directly to the provider of the borrower’s products, services, and expenses daily. Under further guidance, banks will open up current accounts of prospective customers with no banking credit facilities.
Furthermore, the banks were required to periodically track, at least annually, all current accounts, and CC / ODs.
While RBI works in line with the government to provide the required help in the infrastructure to improve demand in the economy with the disruptions caused by the coronavirus pandemic. Although the central bank lowered its repo rate by 250 basis points, it made important decisions, including international interest-rate benchmarking. Despite the uncertainty surrounding inflationary rates, at the last MPC meeting, the RBI retained its interest rate quo. It has, however, retained the role as accommodating that the RBI can go for a further rate reduction if necessary.
The RBI suggested that the credit equilibrium would not be used for the use of non-fund credit facilities in these accounts.
“If more than one bank has 10 percent or more of the financial system exposure to this borrower, a joint agreement may be taken between the borrower and the banks between the financial to which the funds are to be transferred,” RBI said. For customers without CC / OD from any bank, the RBI has set three conditions in which current accounts are opened. If the banking system is exposed to Rs 50 or more, banks must develop an escrow mechanism in the case of borrowers.
