No current accounts for customers with cash credit, overdraft facilities: RBI

In a bid to improve credit discipline, the Reserve Bank on Thursday banned banks from opening current accounts for customers who have used cash credits or overdraft facilities, stressing that there is a ” need discipline” on this front.

In a notification, the central bank said that instead of opening a new current account, all transactions should be routed through a Cash Credit (CC) or OverDraft (OD) account.

However, the RBI did not specify the exact reasons for initiating such a decision. It can be noted that in recent cases of fraud like the PMC Cooperative Bank scam of over Rs 4,000 crore, it was discovered that multiple accounts had been opened.

Officials in the know said the move will avoid cheating the system and reduce blind spots, which will ultimately lead to the protection of depositors’ money.

On Thursday, RBI Governor Shaktikanta Das said it was “necessary to take appropriate measures to strengthen credit discipline” and said there were concerns about the use of multiple accounts by borrowers, which calls for the need for guarantees for the opening of such accounts by borrowers with credit facilities with several banks.

Stating that there is a “need for discipline” on the part of banks in opening current accounts, the RBI said that “no bank will open current accounts for customers who have made use of credit in the form of cash credit (CC) / overdraft (OD) from the banking system and all transactions will be routed through the CC/OD account”.

“Banks should not route drawdowns on term loans through current accounts. Since term loans are for specific purposes, the funds must be remitted directly to the provider of goods and services. Expenses incurred by the borrower for day-to-day operations should be channeled through CC/OD account, if the borrower has a CC/OD account, otherwise through a current account,” he added.

It can also be noted that there is a plan to have a unique customer identifier for the banking needs of each entity which will help with monitoring, but it is not quite in place.

If a customer opens multiple accounts and there is no control over the end use of the funds, it is possible that the same customer may engage in malfeasance by withdrawing money from the same bank through one account. different. It is also possible that the money could be used to repay the first credit facility and continue to use the same modus operandi, which can potentially lead to a wider concern.

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