RBI/2004-05/86
UBD. PCB.Cir. No. 7/09.11.01/2003-04
July 29, 2004
The Chief Executive Officers of all Primary
(Urban) Co-operative Banks
Dear Sir,
Opening of Current Accounts by banks - Need for discipline
It has been brought to our notice that some
borrowers open current accounts with banks other than the lending bank, with
a view to overcoming credit discipline that is imposed on them by the lending
bank. They usually resort to this practice when their loan accounts turn irregular
and they do not intend to deposit receipts into the loan accounts for regularizing
them.
2. Keeping in view the importance of credit
discipline for reduction in NPA level of banks, we advise that at the time of
opening of current accounts, the banks should
- insist on a declaration from the account-holder to the effect
that he is not enjoying any credit facility with any other commercial bank
or obtain a declaration giving particulars of credit facilities enjoyed by
him with any other commercial bank(s)
- ascertain whether he/she is a member of any other co-operative
society/bank; if so, the full details thereof such as name of the society/bank,
number of shares held, details of credit facilities, such as nature, quantum,
outstanding, due dates etc.
Further in the case he/she is already enjoying
any credit facility from any other commercial / co-operative bank, the bank
opening a current account should duly inform the concerned lending bank(s) and
also specifically insist on obtaining a No-Objection Certificate from them.
In case a facility has been availed from a cooperative bank / society, it is
essential for the bank to comply with the requirements of the Co-operative Societies
Act / Rules of the state concerned in regard to membership and borrowings.
3 The banks may advise all their branches
suitably. The procedure is considered essential in the interests of overall
credit discipline since its non-adoption leads to facilitating diversion of
funds by borrowers to the detriment of the banking system.
4. Banks are also advised to note that non-adherence
to the above discipline could be perceived to be abetting the siphoning of funds
and such violations which are either reported to RBI or noticed during our inspection
would make the concerned banks liable for penalty under Banking Regulation Act,
1949 (AACS).
5. Please acknowledge receipt to the Regional
Office concerned.