NO OPENING OF CURRENT ACCOUNT TO A COMPANY OR FIRM SAYS RESERVE BANK OF ...

No Opening of Current Account
to a Company or a Firm says RBI  https://youtu.be/YvEvIcGuXtE

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If your company or firm is having
bank limits more than Rs 5 cr, you can not open current account unless follow
the procedure defined by RBI.

RBI asks banks not to open
current accounts for customers having cash credit, overdraft accounts and
having loan exposure of Rs 5 Crores or more.

DOR.No.BP.BC/7/21.04.048/2020-21dated
August 6, 2020

TO
IMPROVE CREDIT DISCIPLINE

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 a "need for
discipline" on this front.

In a notification, RBI said
that rather than opening a
new current account, all transactions should be routed through Cash Credit (CC)
or OverDraft (OD) account

WHY
SUCH MOVE IS NOW ?

It can be noted that in
recent instances of fraud like the over Rs 4,000 crore PMC co-operative Bank
scam, it was discovered that multiple accounts were opened. Officials in the
know said the move will avoid hoodwinking of the system and reduce the blind
spots, which will ultimately lead to protection of depositors’ money.

There are 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.

NEED
FOR DISCIPLINE

there is a "need for discipline" by the banks in opening
current accounts, the RBI said, "no bank 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 transactions shall be routed
through the CC/ OD account".

DRAWAL
FROM TERM LOANS

"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 a CC/ OD account,
else through a current account.

t 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.

ESCROW
MECHANISM

In case of borrowers where
exposure of the banking system is ₹50 crore or more, banks shall be required to
put in place an escrow mechanism. Accordingly, current accounts of such
borrowers can only be opened/maintained by the escrow managing bank.

Banks are free to open
current accounts of prospective customers who have not availed any credit facilities
from the banking system, subject to necessary due diligence.

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 a CC/OD account,
else through a current account

How
it Works ?

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 also 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.