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RBI Eases Rules on Current, CC and OD Accounts
📅 Published 12 Dec 2025 · December 2025
RBI Eases Rules on Current, CC and OD Accounts
The Reserve Bank of India (RBI) has relaxed its framework governing the opening and operation of current accounts (CA) and overdraft (OD) accounts, reducing restrictions that earlier tied businesses closely to their lending banks. The revised norms aim to improve operational flexibility for companies while maintaining safeguards against diversion of funds.
Comparison: Current Account vs Cash Credit vs Overdraft
| Aspect | Current Account (CA) | Cash Credit (CC) Account | Overdraft (OD) Account |
|---|---|---|---|
| Nature | Deposit account | Working capital loan facility | Short-term credit facility |
| Primary Purpose | Routine business transactions | Financing day-to-day operational expenses | Meeting short-term liquidity gaps |
| Interest on Balance | No interest paid | Not applicable | Not applicable |
| Interest Charged | Not applicable | Charged only on utilised amount | Charged only on overdrawn amount |
| Withdrawals | Unlimited | Up to sanctioned credit limit | Beyond balance up to approved limit |
| Credit Limit | Not applicable | Sanctioned based on stock, receivables, or drawing power | Sanctioned limit based on creditworthiness or security |
| Revolving Nature | Not applicable | Yes, repaid amount can be reborrowed | Yes |
| Linkage | Base account for business operations | Usually linked to CA | Linked to CA or Savings Account |
| Security | Not required | Generally secured (inventory, receivables) | Can be secured or unsecured |
| Cost of Credit | Not applicable | Lower than OD | Generally higher than CC |
| Typical Users | Businesses, firms, institutions | Manufacturing, trading, MSMEs | Businesses and individuals |
| Common Uses | Payments, receipts, settlements | Inventory purchase, wages, operating costs | Temporary cash flow mismatches |
Key Changes Announced:
Higher Loan Threshold for Restrictions
- Earlier, businesses with borrowings of ₹5 crore or more could open current accounts only with their lending banks.
- The RBI has now raised this threshold to ₹10 crore.
- Borrowers with loans below ₹10 crore can open CA/OD accounts with any bank, subject to conditions.
Cash Credit Accounts Unrestricted
- RBI has removed all previous restrictions on cash credit accounts. These facilities can now be offered by banks based on customer needs without caps, recognising their unique role in working capital finance.
- Cash Credit Accounts: Banks can continue to provide CC facilities based on customer needs without restriction. CC accounts remain operationally distinct from current or OD accounts as they are primarily linked to working capital requirements.
Wider Choice of Banks
- The new framework applies to most banking categories, including:
- Public and private sector banks
- Small finance banks
- Local area banks
- Regional rural banks
- Co-operative banks
- Payments banks remain excluded.
Rules for Large Borrowers (₹10 crore and above)
- A bank can operate a CA/OD account if it has at least 10% of the borrower’s total exposure or 10% of fund-based exposure.
- If no single bank meets this criterion, the top two lenders by exposure may operate these accounts.
- Rules allow an extra bank of the borrower’s choice if only one bank currently has exposure, subject to a no-objection certificate (NOC) from the lending bank.
Non-Lending Banks and Collection Accounts
- Non-lending banks cannot freely operate CA/OD accounts for large borrowers.
- They may, however, operate collection accounts, provided funds are transferred to the main operating account within two working days.
- RBI now classifies current, CC and OD accounts collectively as “transaction accounts”, giving a uniform regulatory approach and simplifying compliance for banks and customers alike.
Background: Why the Change Matters
- In August 2020, RBI imposed tight restrictions to curb diversion of funds, effectively banning standalone current accounts for borrowers with CC/OD limits.
- While prudent, the rules forced firms to consolidate payments and collections with a narrow set of banks, increasing operational rigidity.
- The revised framework balances risk control with ease of doing business.
Exempted Accounts
Certain accounts remain outside these restrictions, including:
- Accounts opened under FEMA requirements
- Accounts mandated by law
- Accounts maintained by regulated financial entities for core activities
📝 Relevant Exams:
UPSC