CA Mahesh Bansal
Quick Summary
Fund diversion has always been a major problem in our banking system. It has been observed in all major cases of wilful default or fraud that the funds borrowed from banks have been diverted elsewhere and the banks had no control over utilization of funds. This situation is caused due to the fact th
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FAQ :
The main objective is to prevent fund diversion by borrowers and ensure better control over the utilisation of bank funds, thereby safeguarding the banking system and the economy.
No, a bank cannot open a current account for a customer who has availed a CC/OD facility from any bank. All transactions must be routed through the existing CC/OD account.
If a borrower has credit facilities from multiple lenders, banks with an aggregate exposure of 10% or more can permit usual operations in their CC/OD accounts. Banks with less than 10% exposure can only allow credits, with funds to be transferred to a CC/OD account with a bank having 10% or more exposure.
Borrowers with aggregate exposure of ₹50 crore or more will have an escrow mechanism, with only the escrow managing bank opening a current account. Those with exposure between ₹5 crore and ₹50 crore can have current accounts with lender banks, while non-lenders can open collection accounts. Borrowers with less than ₹5 crore exposure can open current accounts freely, but must inform banks if their aggregate facilities cross ₹5 crore.
Banks must ensure compliance with these guidelines for all existing CC/OD and current accounts within three months from the date of their issue. Any accounts found to be in violation must be closed within this period.
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