Summary of this article
Cash credit accounts now operate freely without previous RBI restrictions.
Current and overdraft accounts allowed if exposure is below Rs 10 crore.
Accounts above Rs 10 crore require banks to meet share-based eligibility.
The Reserve Bank of India (RBI) has finalised an overall change in the opening and operation of current accounts, cash credit (CC) accounts, and overdraft (OD) accounts. The latest directions have already been issued to commercial banks, small finance banks (SFBs), local area banks, regional rural banks (RRBs), urban co-operative banks, and rural co-operative banks.
The new guidelines will be applicable from April 1, 2026. However, they can be implemented voluntarily before that date. The new guidelines will replace several clauses with a single chapter, which will have a common set of rules for all types of banks.
Cash Credit Accounts Released From Restrictions
Under all classes of banks, RBI has made it clear that there are operational differences between CC accounts and current/OD accounts because they operate as working capital facilities tied to the borrower’s current assets.
According to new directions, a bank can offer cash credit facilities as and when required by the borrower without any restriction on accounts. There were operational restrictions introduced before, and a need was felt for special requirements for CC accounts due to working capital finance.
Current And Overdraft Accounts Permitted Freely For Exposure Below Rs 10 Crore
Another major change is that banks are permitted to hold current or OD accounts without restrictions if the aggregate exposure of the borrower to the banking system is less than Rs 10 crore. Aggregate exposure here would include all fund and non-fund based loans sanctioned from commercial banks, SFBs, local area banks, RRBs, urban co-operative banks, and rural co-operative banks.
Payments banks will not be considered as a part of the banking system for applying this regulation. A common exemption will allow and help smaller business borrowers open current as well as OD accounts.
Amounts Worth Rs 10 Crore Or Above To Attract Eligibility Criteria Based On Shares
For borrowers with banking system exposure of Rs10 crore or more, a stricter share based rule applies. A bank can maintain a current/OD account if they have at least 10 per cent share in the total system exposure or 10 per cent share in the total fund based on exposure.
If no bank meets the 10 per cent threshold or only one bank fulfils the criteria, two banks with the maximum exposures will be allowed to maintain these accounts. If only one bank has any exposure to the borrower, an additional bank of the borrower’s choice may maintain an account, provided it obtains a no objection certificate from the bank that holds the exposure.
Banks that do not qualify will be permitted to maintain only the collection accounts. A collection account is a restricted transaction account offered primarily for receiving deposits.
Collection Accounts And Fund Flow Rules
The amount received through collection accounts has to be routed within two working days to a designated account earmarked by the borrower. The designated account could be a cash credit, current, or overdraft account maintained with any eligible bank.
Before remittance, only statutory dues and charges payable to the bank operating the collection account may be debited.
Exempted Accounts And Transactions
The share-based restrictions do not apply to specific types of accounts, such as accounts opened under Foreign Exchange Management Act (FEMA), 1999 and its notifications, accounts mandated as a statute or instructions by the central and state governments, and accounts regulated by the financial sector regulator. These accounts have to be operated for permitted purposes and any surplus amount has to be remitted into the designated account.
Monitoring And Ineligibility Actions
All banks are required to check accounts at least once on a half-yearly basis. Moreover, if there is an increase in a borrower’s outstanding amount beyond Rs 10 crore or if the bank’s exposure share falls below the required level, the bank must notify the customer within one month.
The respective current/OD account has to be converted into a collection account or closed within three months. Banks need to mark all accounts, which have been opened as per these guidelines, on core banking systems.
Restrictions On Misuse And Pass-Through Activity
Banks must ensure that current accounts, cash credit, and overdraft accounts are used for authorised business activities. The accounts should not be used for operating as a pass-through facility for third parties unless specifically authorised and licensed by the regulating authority to do so.
The banks have also been directed to set up a monitoring system to detect high volumes and irregular patterns that don’t align with the borrower's line of business. Term loans should also not preferably be disbursed into the borrower’s own account, according to the guidelines.
