Planning to Have Multiple Current A/c for the Same Business? Check These Guidelines

You may wonder why a business might want more than one current account. In practice, having multiple accounts can help with cash-flow management and organization. For example, one account might be used for receiving payments, another for payroll, or separate accounts for different divisions or projects. This segregation can make bookkeeping and budgeting easier, since each account clearly tracks a particular type of expense or income.

However, there are trade-offs. More accounts means more banking relationships and potentially more fees or minimum balance requirements. It also increases administrative work (multiple ledgers, reconciliations, KYC updates, etc.). From a regulatory perspective, having several current accounts is heavily scrutinized: banks and the RBI will monitor your accounts to ensure they aren’t being used to hide or siphon off funds. In fact, regulators observed that some borrowers used multiple accounts to divert cash, which is a key reason RBI tightened the rules.

In summary, multiple current accounts can offer flexibility – e.g. segregating funds or diversifying banking partners – but they come with extra cost and complexity, and (as we discuss below) are subject to RBI rules on corporate accounts.

RBI Guidelines on Current Accounts

Since 2020, the Reserve Bank of India (RBI) has laid down strict rules to enforce credit discipline and curb misuse of current accounts by corporate borrowers. The core idea is that if a business has outstanding loans (cash credit or overdraft) in the banking system, all its banking transactions should flow through the loan account or one designated account, preventing cherry-picking of accounts. Key RBI instructions (from the August 6, 2020 circular and subsequent clarifications) include:

• Borrowers with CC/OD facilities: If your business has a cash-credit (CC) or overdraft (OD) loan from the banking system, RBI says no new current accounts should be opened at another bank. All transactions must be routed through the CC/OD account. In practice, this means if Bank A has given you working capital, you cannot open an additional current account at Bank B for payments – any surplus funds belong to Bank A’s loan account.
• Exposure < ₹5 crore: If your total credit exposure from all banks is less than ₹5 crore, the restrictions are relaxed. Any bank can open a current account for you without the CC/OD rule, subject to an undertaking that you will inform them when your credit crosses ₹5 crore. In other words, small borrowers can hold multiple accounts as needed (useful for very small businesses or start-ups), but they must declare when they take on larger loans.
• Exposure ≥ ₹5 crore: Once your borrowings reach ₹5 crore or more, the discipline kicks in. You can maintain a current account only with one bank that has at least 10% of your total bank exposure. If none of your lenders has a 10% share, then the bank with the largest share can host your current account. Any other bank that lends you money can only open a “collection account” – a restricted account that collects funds and must transfer them (typically within two working days) to the main bank’s current account. Importantly, these collection accounts cannot be used as collateral or to directly repay loans; they simply funnel receipts to the primary account.
• Exposure ≥ ₹50 crore (no prior CC/OD): If your business did not take CC/OD but the bank loans exceed ₹50 crore, you must set up an escrow mechanism. One nominated bank becomes the escrow manager and holds the main current account. Other banks may only open collection accounts that remit to this escrow account. This ensures all large inflows are consolidated under one bank’s oversight.
• Borrowers without any bank credit (or only NBFC credit): If you have no credit from banks (or only non-bank credit like NBFC loans), banks may open current accounts freely, subject to normal due diligence. Again, once your banking exposure crosses ₹5 crore (for NBFC-only borrowers), the above rules will apply. For purely prospective customers (no credit history), banks can open current accounts without restriction.
• Statutory & Special-purpose accounts (exemptions): RBI recognized that some accounts must exist by law or regulation, and so exempted certain categories from the above restrictions. Examples include: - Escrow/nodal accounts for specific purposes (e.g. RERA-mandated escrow for 70% advances in real estate projects). - Accounts under FEMA (like for foreign remittances) or for payment-of-taxes/duties with government-authorized banks. - Payment Aggregator/Prepaid Instrument escrow accounts as permitted by RBI’s payments rules. - Card settlement accounts (for banks clearing debit/credit card dues) and accounts for IPOs, share buybacks, dividend pay-outs, debenture allotments, gratuity, etc., when mandated by statute. - White-label ATM operator accounts (to source currency). Banks may open these special-purpose accounts without the general restrictions, but RBI requires they be flagged in the core banking system for monitoring.
• Monitoring by Banks: RBI also mandates that banks monitor all current and CC/OD accounts regularly (at least quarterly) to ensure compliance. After the December 2020 clarifications, banks were asked to monitor at least half-yearly. This means your bank will periodically check your total exposure and account status; non-compliant accounts can be noted and acted upon.

These rules have been phased in and periodically relaxed. For instance, the November 2020 circular gave banks extra time to comply, and in late 2020/2021 RBI announced clarifications (FAQ) and relaxations. Most notably, in October 2021 RBI explicitly allowed exposures under ₹5 crore to open accounts with any bank (with the undertaking) (as noted above), and it eased requirements for government/attached accounts.

Pros and Cons of Multiple Current Accounts

Pros: When used properly, multiple accounts can improve a business’s cash management and organization. For example, having separate accounts “for payroll, operating expenses, taxes, and savings” allows you to segregate funds by purpose. This separation makes it easier to track expenses and budget each category. As one banking blog notes, dedicated accounts for different expenses help ensure funds are allocated correctly and prevent surprises in cash flow. Multiple accounts can also improve financial oversight – you can monitor different income streams and expenses in isolation, simplifying accounting and analysis.

Other potential upsides include diversifying your banking relationships (useful if one bank has technical issues or if you seek competitive pricing) and having specialized accounts (e.g. one with branch banking services for local transactions, another at a central bank for high-value deals). In short, proper use of multiple current accounts can give you better control, clarity, and flexibility over business funds.

Cons: On the flip side, maintaining multiple current accounts can be expensive and complex. Each account may have separate minimum balance requirements and fees. You will need to reconcile transactions across all accounts and ensure none violate RBI rules. Importantly, because RBI’s rules closely tie current accounts to credit facilities, having extra accounts without following the guidelines can get you into trouble. The regulator’s own findings underline this risk: companies with multiple active accounts have been known to divert and siphon off funds, which is why RBI now disallows it.

In practice, failure to comply with RBI norms can trigger penalties. Banks have already closed many accounts that didn’t fit the criteria. If your accounts are flagged as non-compliant, your bank could freeze or close them, or refuse to open new ones. So, the cons of multiple accounts include higher banking costs, increased administrative burden, and the regulatory risk of account closures or sanctions for misuse.

When Can You Have More Than One Current Account?

Despite the restrictions, there are legitimate scenarios where a business can hold multiple current accounts:

• Small Borrowers: If your total bank borrowings are below ₹5 crore, RBI rules explicitly allow you to maintain current accounts with multiple banks (as long as you give the required undertaking). This is common for very small businesses and startups that operate without large loans. In practice, you can open accounts at different banks for operational convenience, just remember to inform them if your borrowing grows beyond ₹5 crore.
• Different Business Verticals or Branches: If your legal entity runs distinct divisions or branches (e.g. a company with multiple business lines), banks may still treat all accounts as belonging to one borrower. However, some banks do allow separate current accounts for different branches of the same company, especially if those branches operate in different cities with different branch managers. If you opt for this, ensure that the total exposure of the business (all branches combined) still adheres to RBI norms. In other words, you might have multiple current accounts in different banks, but only one of them can be the main account if you have credit (the others would be deemed collection accounts under the rules).
• Specific Regulatory Accounts: Some accounts are mandated by law or regulation. For example, real estate developers in India must keep 70% of homebuyer advances in escrow under RERA, and banks are allowed to open such escrow accounts despite the one-account norm. Similarly, accounts for government tax collections or certain statutory payments can be opened in addition to your main account. These exceptions are spelled out by RBI and regulators, so they do not violate the rules (just be sure they truly fit an exemption category.
• Non-Credit Businesses: If your business does not have any credit facility from the banking system at all, banks are generally free to open current accounts as needed. (Again, once you cross ₹5 crore of borrowings, the rules will apply.) Thus, a start-up or new business with no loans can open accounts in multiple banks for ease of operations, though it should still meet each bank’s KYC rules.
• Nodal and Collection Accounts: Even when restricted, you may still use additional collection accounts with other banks. These accounts receive payments on your behalf and then transfer funds to your main account. For example, if one of your lenders opens a collection account at another bank, it can collect cheques or cash there, but must remit the balance to your designated bank’s current account within two days. Collection accounts are not fully-fledged current accounts; they cannot be used for payments or as loan security.

In short, RBI’s guidelines do not absolutely forbid multiple accounts – they impose conditions. You are most free to have several accounts when your credit exposure is low or when the accounts serve legally required functions. For larger, credit-bearing businesses, it’s advisable to have only the number of accounts prescribed by RBI: typically one main current account and any necessary collection or escrow accounts.

Complying with RBI Norms to Avoid Penalties

To stay on the right side of the regulations, follow these compliance tips:

• Choose Your Primary Bank Carefully: If you have any bank loans or OD/CC limits, decide which bank’s current account will be your main operational account. Ideally, pick the bank with the largest lending share (at least 10% of your borrowings) or the one most convenient for your business. All other receipts should then be routed to that account (or through permitted collection accounts).
• Get Undertakings in Place: For exposures under ₹5 crore, banks require a written undertaking from you stating you’ll inform them if your borrowings reach ₹5 crore. Make sure to provide this undertaking promptly when opening the account, and keep track if your borrowing grows.
• Keep Accurate Books: Maintain up-to-date records of your total credit exposure across all banks. Banks compute “exposure” from reports like the CRILC (Central Repository of Information on Large Credits). If you have accounts at multiple banks, make sure each knows your overall credit outstanding. Inform your banks proactively if your borrowing levels change.
• Use Collection Accounts Correctly: If a non-lending bank opens a collection account for you (because it is not one of your lenders), know that you cannot use those funds freely – the bank must transfer the funds to your main account quickly, and it cannot count those balances as collateral for loans. Treat collection accounts strictly as pass-throughs.
• Avoid Unauthorized Accounts: Do not open a new current account in violation of RBI’s loan-linked criteria. If you do (for instance, opening an account at a new bank while already having a CC at another), the bank may refuse or close it later. Always check with your existing bank(s) before adding another account.
• Stay Informed: RBI has issued Frequently Asked Questions and clarifications on its circulars (for example, restricting accounts tied to overdrafts against fixed deposits or agriculture loans). Keep in touch with your bank or a chartered accountant to learn about any updates. RBI’s master circular (as amended) consolidates all rules, and banks should have it on their policy manuals.

Penalties and Consequences: There isn’t a specific monetary penalty for having multiple accounts, but non-compliance can result in account closures and operational disruption. If your accounts are found in violation, banks will either insist you close extra accounts or convert them to collection accounts. They might also refuse future loans or ask you to adopt an escrow arrangement.

Ultimately, RBI’s intent is to prevent fund diversion, not to punish legitimate businesses. By following the guidelines – using one primary current account (or an authorized set of accounts) and notifying your banks of any credit changes – you can avoid any regulatory issues.