The Reserve Bank of India (RBI) has withdrawn proposed restrictions on cash credit (CC) facilities, offering relief to businesses and industries.
Earlier, draft guidelines released in October aimed to enhance control over large borrowers’ transactions.
However, after feedback from industry stakeholders, the RBI decided to remove these limits, ensuring businesses have easier access to working capital.
Cash credit accounts are separate from current and overdraft accounts.
The earlier draft had proposed limiting transactions for borrowers with loans over ₹10 crore, but concerns were raised that this could hamper business operations.
What the Draft Proposed
The October draft guidelines suggested that:
Borrowers could transact with only two banks.
Banks could offer current or overdraft accounts only if they held at least 10% of the borrower’s total exposure.
These measures were aimed at better monitoring of large accounts, but stakeholders argued they would affect cash flow for trading, MSME, and manufacturing sectors.
Changes After Feedback
Following the feedback, the RBI clarified that:
Restrictions on cash credit accounts are lifted to ensure businesses have sufficient working capital.
Any bank with more than 10% exposure to a borrower can operate current or overdraft accounts.
The earlier limit of only two banks has been removed.
Some suggestions for detailed transaction monitoring were rejected, as the RBI believes existing oversight mechanisms are sufficient.
Why This Matters for Businesses
Experts say this decision provides immediate relief to companies and the MSME sector. Cash credit accounts are essential for:
Daily business expenses
Purchases and payments
Smooth financial transactions
Lifting these restrictions will help companies manage cash better and support economic activity by ensuring that funds flow smoothly within the banking system.