RBI Guidelines on Current Account and OD Facilities: Key Provisions

– Anita Baid | finserv@vinodkothari.com

RBI has introduced significant amendments concerning the opening and operation of Current Accounts and Overdraft (OD) facilities. In case of commercial banks, the new provisions contained in Chapter XIA – ‘Opening of Current Accounts and CC / OD Accounts by Banks’, replace the erstwhile framework outlined in Chapter XI of the Reserve Bank of India (Commercial Banks – Credit Risk Management) – Amendment Directions, 2025. The revised guidelines aim to rationalize the restrictions, particularly by increasing the minimum exposure threshold for applicability and providing explicit exemptions for Cash Credit (CC) facilities, thereby streamlining the management of working capital and banking arrangements for corporate borrowers.

Applicability

• Effective Date: April 1, 2026, however, banks may decide to implement earlier, in entirety.

Treatment of Account Types

• Cash Credit Facilities: Banks can provide CC facilities without restriction, recognizing their primary nature as working capital linked to current assets.
• Current/OD Accounts:
  • Banking Exposure < ₹10 Crore: Banks can maintain current accounts or OD accounts without any restriction.
  • Banking Exposure ≥ ₹10 Crore: Restrictions apply based on the bank’s share of the borrower’s total banking system exposure.

Restrictions for Borrowers with ≥ ₹10 Crore Exposure

For customers with an aggregate banking system exposure of ₹10 crore or more:

• Eligibility to maintain Current/OD: A bank can maintain these accounts only if it has a minimum 10% share in the banking systems^[1]:
  • Aggregate exposure, or
  • Aggregate fund-based exposure.

Here, exposure shall mean the sum of all sanctioned fund-based credit facilities and non-fund-based facilities availed by the borrower from the banking system.

• Exception: If no bank or only one bank meets the 10% criteria, the two banks with the largest exposures may maintain the accounts. Under the erstwhile guidelines, only the lending bank with highest exposure was allowed to open a current account.

Opening of Collection Accounts

• Meaning: A current account or OD account used primarily for receipts of cash inflows of the account holder.
• Allowability: Banks that do not meet the 10% eligibility criteria can only maintain Collection Accounts. Earlier, only other lending banks were permitted to open the collection accounts, subject to the transfer restrictions.
• Transfer requirements: Funds credited to a Collection Account must be remitted within two working days to a designated CC, Current, or OD account maintained with an eligible bank. However, statutory dues, taxes, bank dues can be debited first.

Exemptions

The restrictions on opening of the Current/OD Account do not apply to:

• Accounts opened under FEMA provisions;
• Specific accounts mandated by a statute, financial sector regulator, or Government;
• Accounts of regulated entities used for carrying out regulated activities.

Though the list of exemptions under the erstwhile guidelines was quite detailed however, several separate functions have now been imbibed into the aforesaid brief list, to retain the intent f exempt those accounts that are required to be opened separately under any statute or regulatory requirement. Further, there is a new insertion for product-specific current accounts that banks otherwise ineligible can maintain for specific products/services such as, loan servicing. However, there would be limitations on the operation of such accounts, like no cash transaction, no discretionary debits, no issuance of cheque books/cards, and surplus funds shall be remitted to designated account only.

Compliance and Monitoring

• Monitoring Frequency: All banks must monitor accounts for compliance at least once every half-year.
• Action on Ineligibility: If a bank becomes ineligible (e.g., system exposure crosses ₹10 crore, or the bank’s share drops below 10%), it must notify the customer within one month. The customer must then convert the account to a Collection Account or close it within three months.
• System Flagging: Accounts must be appropriately flagged in the bank’s Core Banking Solution (CBS) for identification and monitoring.

Prohibited Usage

Banks opening Current/OD Accounts are required to ensure the following:

• Accounts must be used solely for the accountholder’s authorised business and must not be used as pass-through channels for third-party transactions, unless the entity is expressly licensed by a financial sector regulator to do so.
• Account holders not licensed by the RBI to accept deposits or provide payment services cannot engage in such activities through their accounts.
• Term loans should preferably be remitted directly to the intended beneficiary’s account or for the specified end use, rather than routing through the borrower’s account.

Comparison with Earlier Guidelines

The following table provides a comparative analysis with the erstwhile provisions that are being repealed with the insertion of Chapter XIA:

Feature	Earlier Guidelines (Chapter XI)	Revised Guidelines (Chapter XIA)	Key Change
Threshold for No Restriction	Aggregate banking exposure < ₹5 Crore (para 78)	Aggregate banking exposure < ₹10 Crore (para 91C)	The threshold for no restrictions is doubled, simplifying compliance for a larger segment of borrowers.
Threshold for Restrictions	Aggregate banking exposure ≥ ₹5 Crore (para 79)	Aggregate banking exposure ≥ ₹10 Crore (para 91D)	Restrictions now only apply to borrowers with an aggregate exposure of ₹10 Crore or more.
Criteria for Maintaining Current/OD Account (For borrowers with restrictions)	Lending banks must have at least 10% of the Aggregate exposure (Fund-based + Non-Fund-based). (para 79(1))	Banks must have at least 10% of the Aggregate exposure or Aggregate fund-based exposure. (para 91D)	Inclusion of aggregate fund-based exposure as an alternative criterion for the 10% share, potentially allowing banks with a high share of only fund-based lending to maintain the accounts. Further, if no bank or only one bank meets the 10% criteria, the two banks (instead of just one lending bank under the earlier Guidelines) with the largest exposures may maintain the accounts.
Treatment of Non-Lending Banks (For borrowers with CC/OD facilities)	Not permitted to open Current/ Collection accounts. (para 79(3))	Non-lending banks are not explicitly restricted from opening accounts if the borrower’s total exposure is < ₹10 Crore. If ≥ ₹10 Crore, the general restriction applies, meaning they cannot open Current/OD accounts but may open Collection Accounts if otherwise ineligible.	The revised guidelines focus the restriction on the bank’s share in the exposure, making no explicit separate rule for non-lending banks in the main restriction criteria (para 91D). It only specifies which banks can maintain Collection Accounts, that is, those who do not meet the 10% criteria.
Treatment of Cash Credit Accounts	CC/OD facilities were subject to restrictions based on banking exposure and bank’s share. (para 85, 86)	CC facilities can be provided without restriction, regardless of exposure. (para 91B)	CC accounts are now treated separately and are exempt from the exposure-based restrictions, recognizing their primary role in working capital.
Escrow Mechanism	Mandatory escrow mechanism for borrowers not availing CC/OD with exposure ≥ ₹50 Crore. (para 80)	No such provisions	The mandatory escrow mechanism has been omitted from the revised guidelines, simplifying the structure significantly.
Monitoring Frequency	At least half-yearly (para 89)	At least once every half-year (para 91I)	No Change
Action on Ineligibility	Implement new banking arrangements within three months from the monitoring date. (para 89)	Notify the customer within one month and the customer must convert/close the account within three months. (para 91J)	Specific requirement to send a notification to the account holder within one month when a customer/bank becomes ineligible.

---

^[1] ‘Banking System’ shall include Commercial Banks (including Small Finance Banks, Local Area Banks, and Regional Rural Banks, but excluding Payments Banks), Urban Co-operative Banks and Rural Co-operative Banks (State Co operative Banks and Central Co-operative Banks)

---

Our related resources:

1. Banking exposure to open the current account by the banks
2. Group-level regulation: RBI brings major regulatory restrictions on banks and group entities
3. New Commercial Bank Regulations: A ready reckoner guide