BANK NEWS
RBI bans loan terms for current accounts users to prevent misuse of bank funds
New Delhi: The Reserve Bank of India decides to banned banks from routing funds from term loans taken by borrowers through their current accounts to prevent misuse of the bank’s funds, a common practice among borrowers to divert funds.
Now the banks are banned to open the current account for customers who have availed credit facilities in the form of cash credit (CC) or overdraft (OD) from other banks and stipulated that all transactions should be routed through the CC or OD account. This effectively means current account holders can’t divert money for another purpose through the current account of other banks, mainly private and foreign banks.
The RBI said, “Since term loans are meant for specific purposes, the funds should be remitted directly to the supplier of goods and services.”
“Expenses incurred by the borrower for day to day operations should be routed through CC/OD account if the borrower has a CC/OD account, else through a current account,” it said in a notification to banks.
Earlier the current accounts were managed by the private banks but now the credit and overdraft will be managed by PSU banks only.
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