Banks will not open current accounts for those with cash credit, overdraft | Mint
Active Stocks
Fri Feb 23 2024 15:58:13
  1. Tata Steel share price
  2. 145.50 -0.24%
  1. State Bank Of India share price
  2. 759.40 -0.86%
  1. HDFC Bank share price
  2. 1,420.90 0.08%
  1. NTPC share price
  2. 337.70 -0.54%
  1. ITC share price
  2. 411.60 -0.65%
Business News/ Industry / Banking/  Banks will not open current accounts for those with cash credit, overdraft
BackBack

Banks will not open current accounts for those with cash credit, overdraft

RBI said rather than opening a new current account, all transactions should be routed through Cash Credit or OverDraft account
  • The move will avoid hoodwinking of the system and reduce the blind spots
  • It 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.Premium
    It 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.

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

    However, the RBI did not specify the exact reasons for initiating such a move. It can be noted that in recent instances of fraud like the over 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.

    On Thursday, RBI Governor Shaktikanta Das said it is "necessary to take appropriate measures for strengthening credit discipline" and said 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.

    Stating that 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".

    "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," it added.

    It 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.

    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.

    Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

    Catch all the Industry News, Banking News and Updates on Live Mint. Check all the latest action on Budget 2024 here. Download The Mint News App to get Daily Market Updates.
    More Less
    Published: 07 Aug 2020, 10:02 AM IST
    Next Story footLogo
    Recommended For You
    Banking Stocks
    ₹1,100.65-0.7%
    ₹1,419.80.08%
    ₹1,063.65-0.23%
    ₹129-0.78%
    ₹765.95-0.86%
    Switch to the Mint app for fast and personalized news - Get App