RBI’s Step towards Secure Banking

BE/RBINOTE/56/2020

Reserve Bank of India (RBI) has set some new conditions for the banks to opening current accounts for large borrowers with a view to enhance credit discipline.  These conditions are for customers who have availed cash credit or overdraft facilities.

RBI’s Step Towards Secure Banking!

• The RBI governor, Shaktikanta Das in a statement on Developmental and Regulatory Policies on August 6 said that multiple operating accounts used by large borrowers- both current and cash/overdraft accounts- have been observed to be prone to violate the credit discipline.
• In a notification, the RBI said that rather than opening a new current account, all transactions should be made through cash credit (CC) or overdraft (OD) account.
• This move will avoid hoodwinking the system and reduce the blind spots thus protecting the depositor’s money, said the officials with knowledge in the matter.
• The central bank also said that the revised norms will likely bring in the requisite discipline in collective actions by creditors for speedier resolution of stress in the accounts of borrowers.
• It added, “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 CC/ OD account, else through a current account.”

What are the reason behind this move?

1. The reason behind this move hasn’t been stated by the RBI, however,  it can be linked to the Rs 4000 crore PMC cooperative bank scam wherein multiple accounts were opened.
2. A customer can open multiple accounts there is no monitoring of funds. Also, the same customer can withdraw a huge amount from the same bank from different accounts, which can possibly lead to fraud cases and scams.
3. The customer can take part in a vicious circle, wherein he uses the money to pay the first credit facility which can lead to a wider concern.