On Monday, the Reserve Bank of India (RBI) issued a series of frequently asked questions (FAQs) on the 6 August circular with regard to the opening of current accounts. With effect from 15 December, certain exemptions have been allowed on current account rules.
The 6 August circular
In the 6 August circular RBI mandated banks which account for less than 10% of the aggregate banking exposure to a large borrower to open only collection accounts for that borrower. It also stated that no bank shall open current accounts for customers who have availed credit facilities in the form of CC)/OD from the banking system and that all transactions shall be routed through the CC/OD account.
The circular was aimed at enforcing better repayment discipline among large borrowers and prevent siphoning of funds but banks sought clarifications about what constitutes the definition of 'aggregate exposure', among other things.
14 December notification
As per clarification provided by the RBI on 14 December:
- All the scheduled commercial banks and payments banks will be excluded from the RBI's August 6 circular.
- Accounts for real estate projects, mandated under the Real Estate (Regulation and Development) Act, 2016, are exempted from the 6 August circular in order to be able to maintain 70% of advance payments collected from homebuyers.
- Nodal or escrow accounts of payment aggregators or prepaid payment instrument issuers for specific activities permitted by the Department of Payments and Settlement Systems (DPSS) will not be included.
- Accounts for settlement of dues related to debit card, ATM card and credit card issuers/acquirers will not be included.
- The exempted categories also include accounts permitted under FEMA, 1999, and accounts for the purpose of IPOs, new fund offers (NFOs), FPOs, share buybacks, dividend payments, issuance of commercial papers and allotment of debentures or gratuity, mandated by respective statutes or regulators are also exempted from the circular, subject to specific or limited transactions only.
- Accounts for payment of taxes, duties and statutory dues opened with banks authorised to collect the same, for borrowers of such banks not authorised to collect such taxes or dues will also not count towards the exposure limit.
- Accounts of White Label ATM Operators and their agents for sourcing of currency have been exempted.
The RBI said this permission was subject to the condition that the banks should ensure that these accounts were used for permitted or specified transactions only.
"Further, banks shall flag these accounts in the CBS (core banking system) for easy monitoring. Lenders to such borrowers may also enter into agreements/arrangements with the borrowers for monitoring of cash flows/periodic transfer of funds (if permissible) in these current accounts," the notification added.
Banks will be required to monitor all current accounts and cash credit/ overdraft accounts (CC/ODs) regularly, at least on a half-yearly basis, specifically with respect to the exposure of the banking system to the borrower, to ensure compliance with instructions contained in the circular dated August 6.
They will not be required to obtain no-objection certificates (NOCs) before opening current accounts.
Responding to banks' queries on how they must determine the aggregate exposure of the banking system to a borrower, the RBI said they might compute the aggregate exposure for the purpose of these guidelines based on the information available with Central Repository of Information on Large Credits (CRILC), credit information companies (CICs), National E-Governance Services (NeSL), and by obtaining customers' declaration if required.
It was also clarified that all fund-based and non-fund based credit facilities sanctioned by banks and carried in their Indian books - including daylight overdraft (DLOD)/ intra-day facilities, irrevocable payment commitments, limits set up for transacting in forex and interest rate derivatives as also commercial papers (CPs) - shall be included for the purpose of aggregate exposure.