Operations of thousands of small businesses across the country were disrupted after their current accounts were closed on Monday, as banks rushed to comply with the Reserve Bank of India’s directive on the opening of such accounts by borrowers aimed at preventing diversion of funds.

As per the RBI’s directive issued in August 2020, no bank can open current accounts for customers who have availed of credit facilities in the form of cash credit (CC)/overdraft (OD) from the banking system. While the central bank had given banks time until end-July to implement the new rules, many account holders were caught unaware.

Accounts frozen

Rajiv Podar, President of IMC Chamber of Commerce & Industry, said borrowers across corporate as well as non-corporate structures did not receive any intimation from the banks and were surprised to find all the current accounts frozen, leading to complete operational disruption.

“For example, project accounts are frozen, plant-wise current accounts are frozen, banks have withdrawn current account products without any intimation, which is against the spirit of banking. How will the companies pay salaries in August and even all other statutory dues?,” Podar asked.

Besides maintaining a cash credit/overdraft account with the lead bank in the consortium of banks, businesses with pan-India operations also have relationships with other banks with either a strong presence in specific geographical locations or offering superior product and service capabilities or both. But concerned about the diversion of funds by borrowers via accounts outside the consortium, the RBI had imposed restrictions on the opening of CC/OD accounts by borrowers.

Banks are now forcing companies to route all their transactions only through the bank which had extended cash credit and overdraft facilities. While MSMEs are allowed to open as many current accounts as possible for receiving credits, all debits have to happen only through the bank which has an exposure of over 10 per cent of the borrower.

Chandrakant Salunkhe, President, SME Chamber of India, said many small units are struggling to meet their payment commitments even after having the required money in the bank as their accounts are frozen and attempt to release the funds would take 15 days to one month.

Compliance status

Meanwhile, the RBI, on Monday, took stock of the compliance status of banks with its directive. Banks are believed to have largely complied with the RBI’s directive.

To alleviate the suffering of borrowers, Podar sought a breather of six months for implementing the guidelines in a modified manner, with proper guidelines to banks and clients.

“Lead banks should be allowed to hold multiple shadow current accounts to meet borrower requirements such as salary, contract-specific, location-specific, purpose-specific, etc. Each shadow account shall have a unique number and a standalone bank statement,” the IMC President said.

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