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Succeeding reports of small businesses being hit with account freezes in the last few days, the Reserve Bank of India (RBI) has allowed time to banks till October 31 to implement changes on the current account front. This extended timeline shall be utilised by banks to engage with their borrowers to arrive at mutually satisfactory resolutions within the ambit of the circular. The central bank said the circular is aimed at enforcing credit discipline amongst the borrowers as well as to facilitate better monitoring by the lenders, but made it clear that a ‘graded approach’ had been prescribed to banks on opening and operating of current accounts and cash credit/overdraft CC/OD facilities.

The RBI said ‘Banks were required to implement these instructions in a non-disruptive manner while keeping the bonafide business requirements of the borrowers in mind’. It can be noted that over last few days, small businesses have complained about freezing of accounts by their banks, as they implemented the slew of circulars on the issue, the last one being on December 14, 2020. The RBI has received requests from the banks for some more time to resolve the operational issues while implementing the circular in letter and spirit for which it is now extending the date of implementation.

The RBI said if a bank is unable to resolve any issue, it can be escalated to the Indian Banks Association (IBA) for guidance and residual issues can be taken up with the RBI by the industry lobby grouping for being redressed. Accounts of White Label ATM operators and their agents are exempt from the provisions of the Current Account circular dated August 6, 2020, it said, adding that as cash-in-transit (CIT) companies or cash replenishment agencies (CRAs) essentially carry out a similar activity, the exemption would be applicable to these entities as well. It also asked banks to put in place a monitoring mechanism, both at head office and regional/zonal office levels to monitor non-disruptive implementation of the circular and to ensure that customers are not put to undue inconvenience during the implementation process. The RBI also made it clear that banks are not permitted to open current accounts for borrowers who have availed agricultural/personal OD or OD against deposits.

It reiterated that in the case of borrowers who have not availed CC/OD facility from any bank, there is no restriction on opening of current accounts by any bank if exposure of the banking system to such borrowers is less than Rs 5 crore, while for those in this category who have a banking system exposure of up to Rs 50 crore, lenders can create current acocunts. It said the restriction applies to borrowers in case they avail of CC/OD facility since all operations that can be carried out from a current account can also be carried out from a CC/OD account as banks in a CBS environment follow a one-bank-one-customer model as against a one-branch-one-customer model.