Reserve bank of India has restricted banks from routing funds from term loans taken by borrowers through their current accounts.

RBI stops routing term loans via current accounts
RBI stops routing term loans via current accounts


In an attempt to stop the misuse of bank funds, the Federal Reserve Bank of India has restricted banks from routing funds from term loans taken by borrowers through their current accounts. the decision is taken to prevent companies and enormous borrowers from transferring funds unfairly from term loans through current accounts in other banks.

The RBI has also banned banks from opening current accounts for patrons who have availed credit facilities within the sort of cash credit (CC) or overdraft (OD) from other banks. Altogether, the lender banks – mostly PSU banks – will now handle the present accounts of borrowers who, in turn, can’t divert money for other purposes through the present accounts of other banks, mainly private and foreign banks.

Since term loans are meant for specific purposes, the funds should be remitted on to the supplier of products and services and expenses incurred by the borrower for day to day operations should be routed through CC/OD account if the borrower has it, else through a accounting , the RBI said.

Consistent with further instructions, the banks are liberal to open current accounts of prospective customers who haven’t availed any credit facilities from the banking industry .

Also, the banks are instructed to watch all current accounts and CC/ODs regularly, a minimum of on a quarterly basis.
Meanwhile, in sight of the disruptions caused by the coronavirus pandemic, the RBI is functioning in line with the govt to supply all necessary infrastructure support in boosting the demand within the economy.

While the financial institution has slashed 250 basis points in repo rate, it also took landmark decisions like external benchmarking of interest rates. Given the uncertainty encompassing the inflation rates, the RBI maintained established order on interest rates within the last MPC meeting. However, it’s still maintained the stance as accommodative, which indicates that the RBI may choose another rate cut if need be.