Changes To Account Opening – Help Or Hindrance?

On 6 August 2020, the  Reserve Bank of India (RBI) issued directions to banks to regulate instances in which current accounts and cash credit (CC) or overdraft (OD) accounts may be opened. Previously, companies could use multiple current accounts, which made their cash inflows difficult to monitor. The directions will introduce checks and balances on the use of multiple accounts by customers with a view to strengthen credit discipline and to prevent the diversion of funds. In this regard, a noteworthy provision of the directions is that the funds of term loans must be remitted by banks directly to the suppliers of goods and services for which the loans were obtained.

The directions prescribe that no current accounts may be opened for customers that have existing CC or OD accounts, and that transactions must be routed only through such accounts. Further, only banks that have provided at least 10% of the aggregate of all fund based and non-fund based credit facilities