RBI during its recent credit policy review, made following two important announcements which are going to be game changer in Indian banking industry. All bankers should take a careful note of the same for its immediate compliance once implemented :

A.      Opening of Current Accounts- Streamlining the use of multiple operating accounts by large and medium sized borrowers by bringing in credit discipline.

B.      Positive Pay Mechanism for cheques with value above Rs. 50000/- and above.

Let us discuss the same one by one:-

OPENING OF CURRENT ACCOUNTS BY BANKS

 Streamlining the use of multiple operating accounts by large and medium sized borrowers by bringing in credit discipline:

a.      No bank shall open current accounts for customers who have availed credit facilities in the form of CC/Overdraft from the banking system and all transactions shall be routed through CC/OD account.

b.      Where a bank’s exposure to a borrower is less than 10% of the exposure of the banking system to the borrower, while credits are freely permitted, debits to the CC/OD accounts can only be for credit to the CC/OD account of that borrower with a bank that has 10% or more of the exposure of the banking system to that borrower. Funds should be remitted from these accounts to the said transferee CC/OD accounts at the frequency agreed between the bank and the borrower.

c.       Further the credit balance in such accounts shall not be used as margin for availing any non fund based credit facilities.

d.      In case there is more than one bank having 10% or more of the exposure of the banking system to that borrower, banks to which the funds are to be remitted may be decided mutually between the borrower and the bank.

e.      However, Banks with exposure to the borrower of less than 10% of the exposure of the banking system can offer WCDL /WCTL facility to the borrower.

f.        Where a bank has a share of 10% or more in the total exposure of the banking system to the borrower, it can provide CC/OD facility as hitherto.

g.      In case of borrowers covered under guidelines on loan system for delivery of bank credit issued vide RBI circular dated 05.12.18, bifurcation of WC facility into loan component and CC component shall henceforth be maintained at individual bank level in all cases, including consortium lending.

However, in case of customers who have not availed CC/OD facility from any bank, bank may open current accounts as under:

A.      In case of borrowers where exposure of the banking system is Rs. 50 cr or more , banks shall be required to put in place an ESCROW mechanism. Accordingly, current accounts of such borrowers can only me opened /maintained by ESCROW managing bank.

             a.      However there is no restrictions on opening collection accounts by lending banks subject to the condition that funds will be remitted from these accounts by lending banks subject to the condition that funds will be remitted from these accounts to the said Escrow account at the frequency agreed between borrower and the bank.

             b.      Further the balances in such accounts shall not be used as margin for availing any non-fund based credit facilities.

              c.      While there is no prohibition on amount or number of credits in collection accounts, debits in these accounts shall be limited to the purpose of remitting the proceeds to the said Escrow account.

             d.      Non Lending banks shall not open any current account for such borrowers.

B.      In case of borrowers where exposure of the banking system is Rs. 5 cr or more but less than Rs. 50 crore , there is no restrictions on opening of current accounts by the lending banks. However, Non Lending banks may open only collection accounts as defined herein above under point no.1

C.      In case of borrowers where exposure of the banking system is less than Rs. 5 cr, banks may open current accounts subject to obtaining an undertaking from such customers to the effect that customers shall inform the bank(s), if and when the credit facilities availed by them from the banking system becomes Rs. 5 crore and above. The current accounts of such customers, as and when the exposure of the banking system becomes Rs. 5 cr or more and Rs. 50 crores or more, will be governed by the provisions as mentioned herein above.

D.     Banks are free to open current accounts of prospective customers who have not availed any credit facilities from the banking system, subject to necessary due diligence as per respective bank’s board approved policies.

Bank shall monitor all current accounts and CC/ODs regularly, at least on a quarterly  basis, specifically with respect to exposure of the banking system to the borrower.

Bank should not route drawal from TL through current accounts.  Since term loan are meant for specific purpose, 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.

As regards existing current and CC/OD accounts, banks shall ensure compliance with the above instructions within a period of 3 months from the date of the circular dated 06.08.20

(Source : RBI/2020-21/20 -BP.BC/7/21.04.048/2020-21 dated 06.08.20.)

POSITIVE PAY MECHANISM

RBI on 06.08.20 announced its plans to introduce a mechanism called “Positive Pay” in order to enhance safety features of cheques of value Rs. 50000/- and above.

The announcement came in order to keep consumer safety in focus and to lower the cases of fraud and abuse with respect to cheque payment. Under the mechanism, all cheques to be processed for payment by the drawee bank based on information passed on by its customers at the time of issuance of cheques. Operational Guidelines in this regard will be issued separately. Positive Pay is essentially an automated fraud detection tool. Very simply, it matches specific information related to the cheque presented for clearing, such as the cheque number, cheque date, payee name, account number, amount and other details against a list of cheques previously authorised and issued by the issuer. Unless all the specific components of the cheque match exactly, the cheque will not be cleared.

How will positive pay mechanism work?

Under the positive pay mechanism, an account holder shares the details of the issued cheque to bank like cheque number, cheque date, payee name, account number, amount etc along with an image of front and reverse side of the cheque before handing it over to the beneficiary. Before encashment, the cheque details are compared with the details provided to the bank through positive pay. If the details match, the cheque will be honoured.

This will cover approximately 20% and 80% of total cheques by volume and value respectively.