Current account in a Bank in India
Current account in a Bank in India is mainly opened for business purpose. Business men/ entities are required to issue and accept payments on frequent basis and to smoothen the process of accepting/making payments Bank account are helpful. In current account, accountholders can make any number of transactions without any restrictions (Transaction should be genuine/legal).
Bank doesn’t give interest on Current Account Deposit. (Exceptional case is that the credit balance in the Current Account of deceased Individual or Proprietor *) Current account is a type of Demand Deposit. Maintaining minimum balance in Current Account is a must, which differs from bank to bank and type of the current account. (Now-a-days banks offer different kinds of Current accounts) .There is no limit for Maximum Balance to be maintained and no limit for number of transactions to be carried out in a Current Account.
Banks give various facilities to Current Accounts. Nowadays Banks offer different types/category of Current Accounts based on Maintenance of Balance, Types of transactions etc.
Some Bank/Branch Managers at their discretion give Temporary Overdraft (TOD) facilities to selected Current Accounts. Such TOD’s depend upon the previous transactions, Net worth of the account holder, average balance maintained and many other criteria. Usually, bank charge highest rate of interest on the amount utilized as Temporary Overdraft (TOD)
* As per the RBI guidelines, Banks should pay interest on the credit balances lying in the Current Accounts of deceased Individual depositor or in the proprietorship account as per the rate applicable on Savings Bank Accounts for the period from the date of deceased till the date of settlement of death claim.
Some of the points Banks should take care while opening Current account in a Bank in India as per RBI New Guidelines specified on 06/08/2020
No Banks are allowed to open a Current account, if the applicant enjoy CC/OD Facility in some other Bank.
If the applicant enjoys any other credit facilities, then only those bank having more than 10% of total exposure limit can open CC/OD Account, then Bank with less than 10% of total exposure limit cannot open CC/OD accounts, but they can sanction Working Capital Term Loan/Working Capital Demand Loan.
If the applicant has not availed any credit facilities from any bank, then any bank can open Current account
and if the applicant has not availed any CC/OD Limits, but availed any term loans then:-
- If the aggregate exposure limit of the applicant is below 5 crore then any bank can open a current account by obtaining a undertaking letter from the applicant stating that he will inform the bank if the credit facilities crosses above 5 crore
- If the aggregate exposure limit of the applicant is above 5 crore and below 5o crore the only the Lender bank can open Current account. Non Lender Banks can open collection account.
- If the exposure limit if above 5o crore, current accounts of such borrowers can only be opened/maintained by the escrow managing bank (Escrow mechanism mandatory) Other lenders can open collection account subject to the condition that funds will be remitted from these accounts to the said escrow account at the frequency agreed between the bank and the borrower. Non lenders cannot open current account.
Banks should not route drawal from term loan through Current account as Purpose of term loans are specific and they should be disbursed directly towards making payments of the same.
If the borrower has a CC/OD account then he/she should route all the expenses incurred for day to day business operations through CC/OD account or else through a current account.
How to open a Current account in a Bank in India
Any person eligible to enter into a contract, can open a Current account with a proper introduction and with valid KYC documents.
Account opening is the starting point of relationship between people and the Bank. Though it is a very simple process, it is very much crucial thing too. Practically, it is not just obtaining or collecting the specified documents and opening account, it is much deeper than that. Banker should take care while opening accounts and should undertake review of accounts and ensure strict compliance with Know Your Customer (KYC)/Anti-Money Laundering (AML) Guidelines and ensure that account should not be opened by any wrong intentioned person, for any wrong doings, frauds etc.
Following entities can open a Current account in a Bank in India:
- Individual
- Sole proprietary concern
- Partnership Firm
- Hindu Undivided Family (HUF)
- Private or Limited Company
- Limited Liability Partnership
- Trust/ Association/ Club/ Society
Individuals can also open a Current Account in individual name provided he or she should have all the proper/legal KYC Documents and should be eligible to enter in to contract. All others like Sole proprietary concern, Partnership Firm, LLP-Limited Liability Partnership, Hindu Undivided Family (HUF), Private or Limited Company, Partnership, Trust/ Association/ Club/ Society etc. can also open current account with proper required KYC Documents to transact their business or day to day activities.
Nomination facilities are given in the Current Account opened by individual/proprietorship concerns as in Savings Bank Account.
Now we can have look at the documents generally required for opening the Current Account:
Individual:
- Photo of the individual
- Photo Identity card- such as PANCARD/AADHAR CARD/PASSPORT/DRIVING LICENCE/ELECTION CARD etc.
- Address Proof – such as AADHAR CARD/PASSPORT/UTILITY BILLS/ANY OTHER DOCUMENTS ISSUED BY GOVT OR AUTHENTIC AUTHORITY
Hindu Undivided Family (HUF):
- Pan card of HUF
- List of Co-parceners and Authority letter signed by all co-parceners authorizing Karta to open and operate the account.
- KYC of Karta (Photo, Identity Proof, Address proof)
- Business Proof, and
- Address proof of Business Premises
Sole Proprietary Concern:
- Photo of the proprietor
- Photo Identity card- such as PANCARD/AADHAR CARD/PASSPORT/DRIVING LICENCE/ELECTION CARD etc.
- Address Proof – such as AADHAR CARD/PASSPORT/UTILITY BILLS/ANY OTHER DOCUMENTS ISSUED BY GOVT OR AUTHENTIC AUTHORITY
- The complete income tax returns filed copies in the name of proprietor, where the firms income reflected duly authenticated by Income Tax Authorities.
- Authentic Document showing the Business like Certificate/license by Shop & Establishment Act, CST/VAT/Sales Tax Certificate and/or any other legal documents required to operate such business, And
- Address proof of Business Location/premises
Partnership Firms:
- All Partners KYC – Photo, Id Proof and Residential Address proof
- Registration certificate (If it is registered firm) and /or Authentic Document showing the existence of Business like Certificate/licence by Shop & Establishment Act, CST/VAT/Sales Tax Certificate or any other legal documents required to operate such business
- Pancard of Partnership Firm
- Address proof of Business Location/premises
- Partnership deed, and
- Power of Attorney (POA) or Mandate for operating account
Private/ Public Limited Company
- Articles of Association
- Memorandum of Association
- Certificate of Incorporation.
- Certificate of Commencement (in case of a Public Limited Company)
- PAN Card or PAN Allotment letter
- Proof of Principal Place of Business
- Directors list of the company and KYC of all working Directors
- Board Resolution to open a Current account and for appointing signatories, and
- Power of Attorney giving the power to its officials/employees to transact on behalf of the company and KYC of such persons.
Trust, Society, Unincorporated Association & Club
- Certificate of registration (if it is registered with Competent Authority)
- Trust Deed
- PAN Card in the name of Trust
- Address Proof & ID Proof (Trust, trustees, executors, administrators, etc.)
- Resolution to open Current Account With the Bank and operation of the account
- Power of Attorney (POA) to transact on its behalf
- Beneficial owners details
- KYC of authorized signatories
Generally accepted business proofs are:
- Shop & Establishment Certificate by Municipal Corporation
- Certificates issued by Gram Panchayat
- Importer–Exporter Code Certificate
- Trade Certificate
- Any other Business Certificate issued by Government Authorities viz. Labour License, Sales Tax, VAT, TIN, GST, TAN, SSI etc.
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