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To curb bad loans due to diversion of funds, moves are afoot to strengthen a mechanism whereby a borrower enjoying credit facilities with a bank or a consortium of banks will not be able open current account with other banks without obtaining a no-objection certificate from the former.
Stiff competition and pressure to grow business are prompting many banks to altogether ignore the process of obtaining no-objection certificate (NOC) when opening current accounts, say bankers versed with developments on this front. Bankers have come across several instances of borrowers opening current accounts with a bank other than the bank(s) with which they enjoy credit facilities, many times without the latter’s permission.
When this happens, borrowers’ tend to deposit sale proceeds in the newly opened current account and divert/siphon off the funds instead of servicing the loan(s) taken.
‘Wilful default’Diversion/siphoning off of funds is an act of ‘wilful default’ and banks can resort to legal process, wherever warranted, against the borrowers/guarantors and press for foreclosure of loans for recovery of dues. The lenders can also initiate criminal proceedings against wilful defaulters, wherever necessary.
Further, wherever possible, the lenders can adopt a proactive approach for a change of management of the wilfully defaulting borrower unit.
To put a stop to the practice of opening current accounts without obtaining NOC, banks are planning to have a mechanism in place whereby they will appoint nodal officers, who will be responsible for issuing NOCs or otherwise. These officers are also expected to mine the loan portfolio to zero-in on current accounts that have been opened without NOC and ensure that such accounts are closed immediately.
Customers can open current accounts with banks for general business purposes. They can deposit/withdraw money at any time from such accounts. There are no restrictions on withdrawals in this type of account. No interest is paid on this type of account. Most current accounts will offer some kind of overdraft facility.
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