What changed
RBI inserted definitions for Cash Credit, Current Account, and Overdraft in Paragraph 4 of the Directions. A new Chapter VIA was added, mandating that for customers with total banking system exposure of ₹10 crore or more, a bank can only maintain current or overdraft accounts if it holds at least a 10% share in that aggregate exposure.
What it means for you
Rural Co-operative Banks must now monitor their share in a borrower's total banking exposure before opening or maintaining current/overdraft accounts for larger customers. This aims to prevent credit leakage and improve fund utilisation tracking. Banks with smaller exposure shares may need to restructure or exit such accounts.
What you must do
- Review all existing current and overdraft accounts where the customer's total banking exposure is ₹10 crore or more.
- Calculate your bank's share in the aggregate exposure for each such customer.
- Ensure your bank holds at least a 10% share; if not, take corrective action like reducing the facility or closing the account.
- Update internal credit monitoring systems to track banking system exposure for all borrowers.
- Train credit and operations staff on the new definitions and compliance requirements.
Who it affects
Rural Co-operative Banks (State and Central Co-operative Banks), Credit departments of co-operative banks, Borrowers with aggregate banking exposure of ₹10 crore or more
What is the new 10% share requirement?
For customers with total banking system exposure of ₹10 crore or more, a Rural Co-operative Bank can maintain a current or overdraft account only if it holds at least a 10% share in that aggregate exposure or in the aggregate fund-based exposure.
Does this apply to Cash Credit accounts?
No, Cash Credit accounts are not subject to the restrictions under this Chapter. They can be maintained as per customer needs without any limitation under this Chapter.
What is included in 'banking system' for this rule?
It includes Commercial Banks (except Payments Banks), Small Finance Banks, Local Area Banks, Regional Rural Banks, Urban Co-operative Banks, and Rural Co-operative Banks.