RBI Revises Cash Credit and Overdraft Norms to Strengthen Monitoring and Financial Discipline

The Reserve Bank of India (RBI) has introduced a new framework to simplify and improve the operation of cash credit, current and overdraft accounts, as per news reports.  

The updated guidelines aim to enhance flexibility for banks while reinforcing credit discipline and improving monitoring of fund flows in business-related accounts. 

New Chapter on Account Maintenance 

The revised Master Direction includes a new chapter titled Maintenance of Cash Credit Accounts, Current Accounts and Overdraft Accounts.  

The central bank said the move is intended to strengthen credit discipline and ensure better visibility of how funds are utilised, as such accounts often serve as key transaction accounts for commercial borrowers. 

The new framework updates earlier provisions to reflect current banking practices and risk management priorities. “These accounts may be used as transaction accounts by customers, which raises concerns relating to credit monitoring by lenders,” RBI noted in its statement. 

Draft Review and Final Guidelines 

RBI 1st released a draft of the updated norms on October 1, 2025, seeking stakeholder feedback on rationalising existing provisions. After reviewing inputs from banks and financial institutions, the regulator said that several suggestions have been examined and suitably incorporated into the final version. 

The central bank clarified the distinction between cash credit and other account types. A cash credit facility, it said, functions as a working capital line linked to the value of a borrower’s current assets. Banks may extend such facilities based on business requirements without any restriction. 

For current and overdraft accounts, the norms permit banks to maintain such accounts freely if the aggregate exposure of the banking system to a borrower is below ₹10 crore. This approach is designed to reduce compliance burdens on smaller entities while retaining oversight for large borrowers. 

Impact and Operational Treatment 

The revised directions also address collection accounts, which are current or overdraft accounts primarily used to receive inflows.  

Payments or cash outflows from such accounts will be allowed under specified conditions, ensuring that funds remain properly tracked within the banking system. 

By refining operational rules and categorisation, the RBI aims to improve fund flow transparency, reduce credit misuse and promote more efficient working capital management across businesses. 

Read More: RBI Proposes Full Disclosure of Forex Transaction Costs for Retail Customers! 

Conclusion 

RBI’s updated norms strike a balance between operational flexibility and credit discipline. The move is expected to streamline account management for banks and borrowers alike while supporting stronger financial governance across India’s banking system. 

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