The Reserve Bank of India has issued the Urban Co-operative Banks – Credit Risk Management (Amendment) Directions, 2025, introducing a new framework regulating the maintenance of current accounts, cash credit (CC) accounts, and overdraft (OD) accounts by banks. The amendment inserts a new Chapter VIIIA, replacing earlier provisions, to strengthen credit discipline and improve monitoring of fund flows. While CC accounts may continue without restriction due to their working-capital nature, current and OD accounts are now subject to exposure-based conditions. For borrowers with banking system exposure below ₹10 crore, banks may freely maintain such accounts. However, where exposure is ₹10 crore or more, only banks having at least 10% share in the aggregate or fund-based exposure may operate current or OD accounts; others may operate only collection accounts, from which funds must be transferred to a designated account within two working days. Certain statutory, FEMA-related, or regulator-mandated accounts are exempt from these restrictions.
The amendments also impose enhanced compliance and monitoring obligations. Banks must conduct half-yearly reviews, flag eligible accounts in their CBS, and convert or close ineligible accounts within specified timelines. Additional safeguards prohibit the use of accounts for unauthorised third-party transactions, unregulated deposit-taking, or payment services unless expressly authorised by a financial regulator. Banks must also implement systems to detect suspicious or pass-through activities and ensure term loan disbursements are made directly to the identified beneficiaries to prevent fund diversion. The amendments will come into effect from April 1, 2026, though banks may opt for earlier implementation.
Link – https://rbidocs.rbi.org.in/rdocs/notification/PDFs/NT1464119A473B9FA42B58CDE284CDDD9C528.PDF
