RBI eases rules tying cos to lending banks

MUMBAI: RBI has eased rules on opening and operating current and overdraft accounts, reducing the extent to which businesses are tied to their lending banks. The revised framework raises the loan threshold for restrictions and expands the range of banks eligible to offer current accounts. The changes take effect on Apr 1, 2026, though banks may adopt them earlier.

Under the old rules, a business with loans of Rs 5 crore or more could open a current account only with its main lenders, which had often forced companies to consolidate payments and collections with a limited set of banks. The RBI has now raised this threshold to Rs 10 crore. Borrowers below this limit are free to open current or overdraft accounts with any bank, meeting additional conditions. The framework now covers most types of banks - including small finance, local area, regional rural and co-operative banks - with payments banks remaining outside its scope.

To prevent diversion of funds, in Aug 2020, RBI had effectively banned standalone current accounts for borrowers with CC/OD limits and forced routing of all operations through lending banks.

For borrowers with loans of Rs 10 crore or more, the RBI has retained some limits but introduced more flexibility. A bank may operate a current or OD account if it holds at least 10% of the borrower's total exposure, or 10% of the fund-based exposure. If no bank meets this mark, the two lenders with the largest loan shares may operate these accounts.

Non-lending banks still face restrictions for large borrowers but may operate collection accounts, with funds required to be transferred to the main operating account within two working days. Some categories of accounts remain outside these restrictions-accounts opened under FEMA requirements, mandated by law, or maintained by regulated financial entities for their core activities.