**Executive Summary**
These are Amendment Directions issued by the Reserve Bank of India (RBI) regarding the maintenance of cash credit, current, and overdraft accounts by Urban Co-operative Banks, with the goal of strengthening credit discipline and monitoring. These directions, amending the "Reserve Bank of India (Urban Co-operative Banks – Credit Risk Management) Directions, 2025," are effective April 1, 2026. Banks may choose to implement the amendments earlier than this date.
**Key Points / Main Content**
* **Deletion of Existing Paragraphs:** Paragraphs 19, 20, and 21 in Chapter V, Section B of the Directions are deleted.
* **New Chapter VIIIA:** A new chapter is added to address the maintenance of Cash Credit (CC) accounts, Current Accounts, and Overdraft (OD) accounts.
* **Transaction Accounts:** Current, CC, and OD accounts may be used as transaction accounts.
* **Cash Credit Accounts:** CC accounts are operationally different from current or OD accounts, serving as working capital facilities linked to the borrower's current assets.
* **Current and OD Accounts:**
* Banks can maintain unrestricted current or OD accounts for customers with an aggregate banking system exposure of less than ₹10 crore.
* For exposures of ₹10 crore or more, banks must have either a minimum 10% share in the banking system's aggregate exposure or fund-based exposure to maintain such accounts.
* If no or only one bank meets the exposure criteria, two banks with the largest exposures may maintain current or OD accounts; if only one bank has any exposure, one more bank can maintain current accounts at the customer's choice.
* Accounts are subject to a No-Objection Certificate (NOC) from the bank with exposure to the borrower.
* Banks not meeting the eligibility criteria can only maintain collection accounts.
* **Collection Accounts:**
* Funds credited into a collection account must be remitted within two working days to a designated account (CC, current, or OD).
* Disbursements from OD accounts acting as collection accounts must also go through the designated account.
* Statutory dues can be debited before remitting funds.
* **Exemptions:** Restrictions on current and OD accounts do not apply to accounts opened under FEMA or to accounts/transactions stipulated by a financial sector regulator, the Central Government, or a State Government.
* **Compliance Monitoring:**
* Banks must regularly monitor accounts, at least semi-annually.
* If a bank becomes ineligible to maintain a current/OD account, it must notify the customer within one month, and the account must be converted or closed within three months.
* **Other Provisions:**
* Accounts must be used solely for authorized business transactions and not as pass-through channels.
* Accounts permitted for third-party transactions by financial sector regulators are exempt, but must be flagged in the core banking solution (CBS).
* Robust monitoring systems are required to detect prohibited usage, such as high transaction volumes or inconsistencies.
* Term loans should preferably be remitted directly to the beneficiary's account.
* Accounts opened under these directions must be flagged in the bank's CBS.
* **Effective Date:** The amendments are effective from April 1, 2026, though banks may implement them earlier.
**Impact Analysis**
**Stakeholder: Urban Co-operative Banks**
* **Impact:** The amendment directions will impact how Urban Co-operative Banks maintain Cash Credit Accounts, Current Accounts, and Overdraft Accounts. They need to implement new account maintenance guidelines, establish monitoring systems, and ensure compliance with the new regulations to strengthen credit discipline.
* **Action Required:** Banks must update their systems and procedures to align with the new directions, monitor accounts regularly, and notify customers of any necessary account conversions or closures. They also need to flag relevant accounts in their CBS.
**Stakeholder: Customers of Urban Co-operative Banks**
* **Impact:** Borrowers may face restrictions on how they use their accounts. Specifically, customers with high exposures may need to furnish a No Objection Certificate (NOC) from their bank.
* **Action Required:** Some customers may need to change the way they manage their accounts and seek an NOC from the bank that has exposure to them. Customers must use their accounts for authorized business activities only and must respond promptly to notifications from their bank regarding account conversions or closures.
Key Entities Referenced
Reserve Bank of India (Urban Co-operative Banks – Credit Risk Management) Directions, 2025: The primary directions being amended by this document, relating to credit risk management for urban co-operative banks.
Banking Regulation Act, 1949: The Act under which the Reserve Bank of India derives its powers to issue directions.
Reserve Bank of India: The regulator issuing the amendment directions.
Chapter VIIIA – Maintenance of Cash Credit Accounts, Current Accounts and Overdraft Accounts by Banks: New chapter added to the Directions, providing a framework for the maintenance of various types of accounts by banks.
Foreign Exchange Management Act, 1999 (FEMA): Refers to accounts opened as per the provisions of FEMA, which are exempted from certain restrictions outlined in the Directions.
भारतीय ररज़र्व बैंक
RESERVE BANK OF INDIA
RBI/2025-26/146
DOR.CRE.REC.352/07-02-005/2025-26 December 11, 2025
Reserve Bank of India (Urban Co-operative Banks – Credit Risk
Management) – Amendment Directions, 2025
Please refer to Reserve Bank of India (Urban Co-operative Banks – Credit Risk
Management) Directions, 2025 dated November 28, 2025 (hereinafter referred to as
‘the Directions’).
2. On a review, in exercise of the powers conferred by the Sections 21 and 35A read
with Section 56 of the Banking Regulation Act, 1949 and all other provisions / laws
enabling the Reserve Bank of India (hereinafter called the Reserve Bank) in this
regard, the Reserve Bank being satisfied that it is necessary and expedient in the
public interest so to do, hereby issues the Amendment Directions hereinafter specified.
3. The Amendment Directions modifies the Directions as under:
(1) In Chapter V, Section B, and paragraphs 19, 20, and 21 shall be deleted.
(2) After Chapter VIII of the Directions, a new Chapter shall be added as under:
Chapter VIIIA - Maintenance of Cash Credit Accounts, Current
Accounts and Overdraft Accounts by Banks
51A. Current Accounts, Cash Credit Accounts (CC), and Overdraft
Accounts (OD) may all be used as transaction accounts by the
customers, which raises concerns relating to credit monitoring by the
lenders. With a view to strengthening credit discipline and facilitating
better monitoring of transactions and utilisation of funds, this Chapter
provides a framework for maintaining such accounts banks.
A. Cash Credit Accounts
51B. CC account is operationally different from a current account or
OD account, given its primary nature as a working capital facility linked
to the value of the borrower's current assets. A bank may provide suchReserve Bank of India (Urban Co-operative Banks – Credit Risk Management) – Amendment Directions, 2025
cash credit facilities as per the needs of the customer, without any
restriction under this Chapter.
B. Current Accounts and OD Accounts
51C. A bank may maintain current account or OD account without any
restriction in case of customers where the aggregate exposure of the
banking system to the customer is less than ₹10 crore.
Explanation (1): ‘Banking System’ for the purpose of this Chapter shall
include Commercial Banks (including Small Finance Banks, Local Area
Banks, and Regional Rural Banks, but excluding Payments Banks),
Urban Co-operative Banks and Rural Co-operative Banks (State Co-
operative Banks and Central Co-operative Banks).
Explanation (2): ‘Exposure’ for the purpose of this Chapter means the
sum of all sanctioned fund-based credit facilities and non-fund-based
facilities availed by the borrower from the banking system.
51D. In case of customers to whom the exposure of the banking system
is ₹10 crore or more:
(1) A bank may maintain current accounts or OD accounts as per the
needs of the customer provided that the bank has either:
(i) A minimum 10 per cent share in banking system’s aggregate
exposure to the borrower; or
(ii) A minimum 10 per cent share in banking system’s aggregate
fund-based exposure to the borrower.
Provided that, in case no bank within the banking system meets the
above criteria, or only one bank meets the above criteria, two banks
from the banking system having the largest exposures to the borrower
may maintain current accounts or OD accounts.
Provided further that, in case where only one bank within the banking
system has any exposure to the borrower, one more bank of the
customer’s choice within the banking system may maintain current
2Reserve Bank of India (Urban Co-operative Banks – Credit Risk Management) – Amendment Directions, 2025
accounts, subject to furnishing of a no-objection certificate (NOC) from
the bank that has the exposure to the borrower.
(2) A bank, not meeting the eligibility criteria at paragraph (1) above ,
may maintain only collection accounts.
Explanation: ‘Collection Account’ for the purpose of this Chapter
means a current account or OD account used primarily for receipts
of cash inflows of the accountholder. Restricted payments / cash
outflows from such account shall be subject to the conditions
outlined in paragraph 51F of these Directions.
51E. With a view to ensuring credit discipline, lenders may include
additional covenants as per their policies in their loan agreements in
mutual agreement with borrowers.
C. Collection Accounts
51F. Funds credited into a collection account shall be remitted within
two working days of receipt of such funds to a CC account, current
account, or OD account maintained with any bank in the banking
system and designated by the borrower for this purpose (hereinafter
referred to as ‘designated account’ in this Chapter). Any disbursement
of overdraft limit from an OD account, which is in the nature of a
collection account, shall be through the designated account only.
Provided that statutory dues such as taxes, and dues, if any, to the
bank maintaining the collection account may be debited before
remitting the funds.
D. Exemptions
51G. The restrictions placed in terms of paragraph 51D(1) of these
Directions shall not be applicable to the accounts mentioned below:
(1) Accounts opened as per the provisions of Foreign Exchange
Management Act, 1999 (FEMA) and notifications issued
thereunder, including accounts mandated for ensuring compliance
under the FEMA framework.
3Reserve Bank of India (Urban Co-operative Banks – Credit Risk Management) – Amendment Directions, 2025
(2) Specific accounts or transactions which are stipulated under a
statute or a specific instruction of a financial sector regulator, or the
Central Government or a State Government.
Explanation: ‘Financial sector regulator’ for the purpose of this
Chapter refers to the Reserve Bank of India (RBI), the Securities
and Exchange Board of India (SEBI), the Insurance Regulatory and
Development Authority of India (IRDAI) and the Pension Fund
Regulatory and Development Authority (PFRDA).
(3) Accounts of entities regulated by a financial sector regulator, used
for the purpose of carrying out their regulated activities.
Provided that banks operating the above-mentioned exempted
accounts shall ensure that transactions in such accounts are used only
for the permitted / specified purposes. Surplus funds, if any, in such
accounts shall be remitted to the designated account.
E. Compliance Monitoring
51H. For the purpose of ensuring ongoing compliance with this
Chapter, all banks shall monitor accounts maintained with them on a
regular basis, and in any case at least once every half-year.
51I. In case it is observed that a bank is no longer eligible to maintain
a current account or OD account opened in terms of:
(1) paragraph 51C due to increase in exposure of banking system to
the borrower up to or beyond the specified threshold of ₹10 crore;
or
(2) paragraph 51D(1), due to changes in the bank’s share in banking
system’s aggregate exposure or in aggregate fund-based exposure
to the borrower; or due to non-availability of NOC from the bank
that has exposure to the borrower;
then the bank shall notify the customer(s) concerned promptly, and in
any case within one month from the date of observing such ineligibility,
that the account must either be converted to a collection account or
4Reserve Bank of India (Urban Co-operative Banks – Credit Risk Management) – Amendment Directions, 2025
closed. The conversion or closure process, as the case may be, shall
be completed within three months of observing such ineligibility.
51J. Accounts opened in terms of these Directions shall be
appropriately flagged in the bank’s core banking solution (CBS) to
ensure clear identification and to facilitate effective monitoring. Banks
maintaining multiple accounts for a borrower shall ensure that such
accounts and transactions and cashflows therein are monitored at the
borrower level as also at the account level.
F. Other Provisions
51K. A bank shall ensure that an accountholder utilise their account
solely for transactions related to their authorised business or activities.
These accounts shall not, under any circumstances, be used as pass-
through channels for facilitating third-party transactions.
Provided that entities expressly licensed or authorised by a financial
sector regulator to facilitate third-party transactions may continue to do
so. However, such activities shall strictly be limited to the specific
transactions they are authorised to do and shall not extend beyond that
scope. Any account that has been permitted to carry out such third-
party transactions shall be appropriately flagged in the bank’s CBS to
ensure clear identification and to facilitate effective monitoring.
51L. A bank shall ensure that an accountholder, who is not licensed or
authorised by the Reserve Bank to accept deposits or to provide
payment services, do not engage in such activities through accounts
maintained with them.
51M. Robust monitoring systems shall be implemented to detect the
above prohibited usage, including mechanisms to flag accounts
exhibiting unusually high transaction volumes, frequent pass-through
activities, or inconsistencies between the accountholder’s stated line of
business and transactions carried out through the account.
51N. Term loans sanctioned by the bank shall preferably be remitted
directly to the intended beneficiary’s account(s) or for the specified end-
5Reserve Bank of India (Urban Co-operative Banks – Credit Risk Management) – Amendment Directions, 2025
use, where such beneficiary is identifiable, rather than routing the funds
through the borrower’s account.
4. The above amendments shall come into force from April 1, 2026. Banks may
however decide to implement the amendments in entirety from an earlier date.
Vaibhav Chaturvedi
(Chief General Manager)
6