JAIIB · PPB · Unit 1Chapter Notes4–6 Marks Expected

Opening Accounts of Various Types of Customers

Principles & Practices of Banking | Unit 1 Chapter Notes

Accounts for individuals, joint holders, illiterate & blind persons, minors, HUF, partnership firms, LLP, limited companies, trusts, executors, co-operative societies, and government bodies — plus RBI’s current account regime (CC/OD norms), Clayton’s Rule, LEI, and photograph rules.

✓ By Bankopedia.co.in✓ Updated 2026✓ High weightage in JAIIB PPB

📌 Why This Chapter Matters in JAIIB

Chapter 4 is one of the highest-density chapters — it covers every customer type a bank encounters. Expect 4–6 questionsper attempt, typically testing minor account rules (age, majority, guardian rights), HUF Karta identification, Clayton’s Rule in partnership accounts, the current account CC/OD regime thresholds (₹5 crore / ₹50 crore), LEI applicability, and document requirements for each entity type. The “introduction is NOT required” rule (as per RBI KYC guidelines) is a recurring MCQ.

Section 1

Personal Accounts — Individuals & Joint Account Holders

A. Accounts of Individuals

To open an individual account, a person must be: (1) a major by age, (2) of sound mind, and (3) not an un-discharged insolventor disqualified from contracting by law. The account opening form must be signed by the individual(s). When the individual is not of sound mind or is a minor, the court-appointed or natural guardian signs. KYC documents for the guardian must also be obtained — the guardian qualifies as “a customer” under AML regulations.

⚠️ Exam Trap — Introduction Is NOT Required

As per RBI KYC guidelines, the earlier practice of obtaining an introductionfor new account holders has been completely dispensed with. Banks should NOT insist on introduction for opening accounts. The answer to “Is introduction compulsory?” is always Not to be taken.

B. Joint Account Holders

A joint account is opened in the names of two or more individuals. Common reasons:

→Funds belong to more than one person and they want joint control

→Funds earned by one, but another needs convenient access

→Easy access in event of the fund-owner's death

Modes of Operation — Joint Accounts

Either or Survivor (E or S)Any one of the joint holders can operate independently. On death of one, the survivor(s) continue.

Former or SurvivorOnly the first-named holder operates during her lifetime. Survivor operates on death of the former.

Jointly (all must sign)All holders must sign together for every transaction. Most restrictive.

Any one or SurvivorAny one holder may operate; on death of any, the rest continue.

Key Rules for Joint Accounts

→All joint account holders must sign the account opening form

→KYC documents must be obtained for every joint holder

→Joint accounts of residents with a Non-Resident Indian (NRI) are permitted only if the NRI is a close relative of all resident holders

→Relationship among joint holders and the purpose of the joint account must be ascertained

Section 2

Accounts of Illiterate & Blind Persons

A. Accounts of Illiterate Persons

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Current account NOT to be opened

A current account should not be opened in the name of an illiterate person under any circumstances.

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No cheque book

Cheque book must NOT be issued — even in the case of a joint account with an illiterate holder.

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Thumb impression (left hand)

The left hand thumb impression is obtained on the account opening form in the presence of an authorised bank officer and a person well known to the bank, who attests the impression.

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Two photographs required

Passport-size photographs: one affixed to account opening form, one to the passbook.

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Withdrawal in person only

The illiterate person must personally come to the bank with the passbook every time for withdrawal.

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Oral confirmation on every withdrawal

The account holder must orally confirm each withdrawal to the authorised official.

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Literate operator: joint operation only

If an illiterate person wants a literate person to operate, an authorisation-cum-indemnity letter is submitted — but operation must be JOINTLY by both. No 'E or S' or 'literate person only' mandate is allowed.

B. Accounts of Blind Persons

Note — No Legal Bar

There is no legal bar for a blind person to open a bank account. However, due care must be exercised because of signature inconsistency and higher risk of being cheated.

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Two photographs required

Passport-size: one on account opening form, one in passbook.

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Signature/thumb impression attested

Must be attested by a person well known to the bank.

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Branch Manager's discretion

Branch Manager may allow the blind person to operate the account herself, or by a next of kin — after taking a proper 'letter of authority' from the blind customer.

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Inconsistent signature: thumb impression also

If inconsistency is noticed in the signature of a blind customer, the left hand thumb impression may also be obtained.

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Entries read out at each transaction

Entries and balance in the passbook must be updated at each transaction and read out to the customer when no other person is within hearing distance.

Section 3

Accounts of Minors

Under the Indian Majority Act, 1875 and Section 11 of the Indian Contract Act, 1872, a person attains majority at 18 years— even if a court has appointed a guardian. A minor is not competent to enter into a contract. However, contracts for “necessities of life” with a minor are valid, and a minor can be a beneficiary and recover money advanced.

🧠 Key Rules for Opening Minor’s Account

→Banks allow minors ABOVE 10 years to open and operate deposit accounts (subject to conditions)

→KYC formalities for BOTH the minor and her guardian must be completed

→Date of birth must be ascertained and recorded in the bank's systems

→Father is the natural guardian; RBI has permitted mother as guardian too

→'Natural guardian' does NOT include step-mother, step-father, grandmother, or elder brother

→The minor must be literate

→Two minors CANNOT open a joint account together

→RBI allows internet banking, ATM, and debit card — provided the account will not be overdrawn

Rules for Operations — Minor’s Account

Rule	Detail
No overdraft	Minor's account must never go into debit.
Minor can draw cheques	Section 26 NI Act: a minor may draw, endorse, deliver and negotiate a negotiable instrument.
Guardian loses operating rights on majority	After the minor turns 18, guardian cannot operate without fresh confirmation from the (now-major) account holder.
Maximum balance cap	Banks fix the maximum balance in a minor's account as per their policy.
On minor's death	Guardian must close the account.
On attaining majority	Fresh specimen signature of the erstwhile minor + fresh operating instructions must be obtained. Previous guardian instructions become void.
On guardian's death during minority	Balance paid to the minor only after she attains majority.

⚠️ Exam Trap — Age of Majority

Under the Indian Majority Act, 1875, a minor for whom the court has appointed a guardian attains majority at 18 years — NOT 21 years. The old rule of 21 years applied only when the court-appointed guardian managed property before the 1875 Act — this provision no longer applies in modern banking exams.

Section 4

HUF, Sole Proprietorship & Partnership Accounts

A. Hindu Undivided Family (HUF)

When a Hindu dies leaving a business, it passes to legal heirs. If male children survive, it becomes HUF property. Members are called coparceners; the eldest male member is the Karta (manager). Since the 2005 amendment to the Hindu Succession Act, daughters — married or unmarried — are coparceners. The Delhi High Court has held that the eldest female member can also be Karta (Mrs. Sujata Sharma vs. Shri Manu Gupta, 22/12/2015).

Key Operating Rules — HUF Account

→Loan documents should be signed by all adult members (for safety)

→Obtain a declaration from all adult members specifying the Karta — there is no formal designation procedure

→Karta can transfer an asset only for legal necessity or benefit of the estate

→Names of all minor coparceners must be on record; their guardians sign documents on their behalf

→Withdrawal of one coparcener does NOT dissolve or jeopardise the HUF

→Karta operates the account; if there are multiple branches, other major coparceners may also operate

Documents — HUF Account

→Account opening form — signed by all adult members

→Specimen signature card — signed by the Karta

→Joint Hindu Family letter — signed by all adult members

→For minor coparceners: natural guardian signs on their behalf

→KYC documents as per Chapter 3 for all adult members

B. Sole Proprietorship Firms

Law does not distinguish between the proprietor and her proprietary concern — the account can be treated as an individual account. However, a savings account cannot be opened for a proprietorship firm.

→Current account opening form — signed by the proprietor

→Proprietorship declaration/letter — as per bank's format

→Specimen signature card — signed by the proprietor

→All cheques signed in the name of the proprietorship firm (not proprietor's personal name)

→KYC documents as per Chapter 3 (including any 2 business existence documents)

C. Partnership Firms

Defined under Section 4, Indian Partnership Act, 1932 as a relationship between persons who have agreed to share profits of a business carried on by all or any of them acting for all. Registration is optional (except in Gujarat and Maharashtra).

🧠 Clayton’s Rule — Must Know

Clayton’s Rule states that the first item on the debit side is discharged by the first item on the credit side, chronologically. When a new partner is admitted and the account has a debit balance, the old account must be frozen and a new one opened. This crystallises the old liability — preventing future credits from wiping off dues owed by the former partnership.

Cheques to firm — never to personal account

Cheques payable to the firm must NOT be credited to the personal account of any partner or employee.

Partner dispute → all operations stopped

If any partner gives a notice of stoppage, all operations must halt. Joint letter sent to all partners and the firm. Account operative only by all partners jointly thereafter.

Partners are mutual agents

Each partner — including sleeping or secret partners — can bind the firm. (Case: M.M. Abbas Bros. vs. Chetandas Fatehchand, AIR 1979 Mad.)

Clayton's Rule on new partner admission

If the account has a debit balance when a new partner joins, freeze the old account and open a new one. This crystallises old liability and prevents new credits from wiping off old dues (Clayton's Rule: first credit discharges first debit chronologically).

Death of partner

Dissolves the firm automatically (unless deed says otherwise). Stop operations, get Letter of Administration from court. Account restyled: 'R.K. Dhoble (deceased) Ritesh Mittal (executor/administrator)'.

Retirement of partner

Stop operations (liability of retiring partner ceases on public notice). Open a new account.

Countermanding payment

Any partner can countermand the payment of a cheque drawn by another partner.

Things a partner CANNOT do

Open a bank account in his own name for the firm; withdraw a legal suit; admit liability in a suit; acquire or transfer immovable property on behalf of the firm.

Documents — Partnership Firm Account

→Current account opening form — signed by all partners

→Specimen signature cards — signed by all partners

→Original Partnership Deed (for verification & return) + certified copy

→Partnership letter — signed by all major partners in their personal capacity (not under firm seal), stating nature of business, names/addresses of all partners, and mode of operations

→Certificate of Registration (if registered)

→PAN of the partnership firm

→Instructions for authorised persons with specimen signatures and designation

→KYC documents as per Chapter 3 for all partners

Section 5

LLP, Limited Companies & Clubs/Associations

A. Limited Liability Partnership (LLP)

Formed under the LLP Act, 2008. LLPs have Designated Partners with a Designated Partner Identification Number (DPIN). Every partner of an LLP is an agent of the LLP for its business — but NOT an agent of other partners. A small LLP has contribution ≤ ₹25 lakh and turnover ≤ ₹40 lakh.

Key Advantage: LLP is a Corporate Person

Unlike a partnership, an LLP is not dissolved by the resignation or death of a partner. The existing account can be continued — even if in debit balance — when a partner changes. A fresh Resolution for authorised signatories is needed if there is any change in signatories. Partners have no personal liability for dues of the LLP.

Documents — LLP Account

→Current account opening form — signed by all partners

→Certificate of Incorporation of LLP

→LLP Agreement (for verification & return) + certified copy

→Resolution by Designated Partners for opening bank account and designating authorised signatories

→PAN of the LLP

→Instructions for authorised persons with specimen signatures and designation

→KYC documents as per Chapter 3

B. Limited Companies

Type	Key Features	Legal Ref.
Public Ltd.	Min. 7 members; no upper limit. A subsidiary of a public company is also deemed public even if registered as private.	Section 2(71), Companies Act 2013
Private Ltd.	Min. 2, max. 200 members (employees excluded). Restricts share transfer; cannot invite public to subscribe to securities.	Section 2(68), Companies Act 2013
One Person Company (OPC)	Only 1 member + 1 Nominee. Treated on the footing of a private limited company.	Section 2(62), Companies Act 2013
Government Company	51% or more shares held by Central/State Government (including subsidiaries). Word 'Limited' need not follow the name.	Section 2(45), Companies Act 2013

Cash withdrawals — specific authorisation

Cash withdrawals from a company account must be against specific authorisation by the company.

Joint signatories for fraud prevention

Operations are generally permitted under instructions of two or more authorised signatories jointly. Example: 'any two of five authorised officials'.

Death of authorised signatory

Does NOT require stopping payment of cheques signed by that signatory — the company is still a legal person.

Cheque payable to company — never to personal account

Crediting a company cheque to a director's/employee's personal account amounts to negligence under Section 131 of the NI Act, 1881.

Trading vs. non-trading company borrowing

A trading company has implied powers to borrow. A non-trading company must specify borrowing powers in its Memorandum and Articles of Association.

Documents — Company Account

→Certified copy of Memorandum and Articles of Association

→Names of directors as per Articles/Forms filed with Registrar of Companies

→Certified copy of Certificate of Incorporation

→List of beneficial owners (if applicable)

→Board resolution — appointing the bank and naming authorised persons with mode of operation

→PAN of the company

→Specimen signatures of all authorised officials

→KYC documents as per Chapter 3

C. Clubs / Associations / Unregistered Bodies

Bodies formed for social, cultural, religious, charitable, or professional objectives — often not registered as a trust, society, or non-profit company. Managed by a Committee with bye-laws.

Documents & Key Precautions

→Examine bye-laws/rules to ascertain powers and functions of committee members

→Note the rules for operating bank accounts

→Account opening form signed by ALL managing committee members

→Specimen signature cards for authorised signatories

→Copy of Bye-laws/Rules

→Managing Committee Resolution — authenticated per bye-laws or by all committee members — for opening account and naming authorised signatories

→Memorandum of Understanding or similar documents

→Payments to committee members in their individual capacity must be inquired into carefully

Section 6

Trusts, Executors, Co-operative Societies & Government Bodies

A. Trusts

Parties in a Trust

Author of the Trust

The person who reposes or declares confidence (the trust creator)

Trustee

The person who accepts the confidence — manages the trust property

Beneficiary

The person for whose benefit the confidence is accepted

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Examine the Trust Deed carefully

Look for restrictive clauses on withdrawal amounts, provisions for opening accounts, and mode of operations.

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Two or more trustees — joint operation default

Unless the trust deed specifically states otherwise, all trustees must operate the account jointly.

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Death of a trustee

Authority vests in remaining trustees. When all trustees are dead/retired, new trustees are appointed by the court.

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Insolvency of trustee ≠ insolvency of trust

The trust fund remains separate and is not affected by a trustee's personal insolvency.

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Delegation not allowed

Trustees cannot delegate their powers unless specifically authorised by the trust deed.

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No set-off against trust fund

Bank has no right to set off against the Trust Fund for debts owed by Trustees in their personal capacity.

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Cheques payable to Trust — never to trustee's personal account

Trust cheques must be collected for the trust — not credited to any trustee's private account.

B. Executors & Administrators

Term	Meaning	Prerequisite
Executor	Named in the will; derives title immediately on the death of the Testator for administration of property	Must obtain a Probate from a court of law before acting
Administrator	Appointed by Court to manage property of a deceased who died without a will (intestate)	Requires Letter of Administration from the court

Operating Rules & Account Naming

→Account opened strictly as per Probate / Letter of Succession / Letter of Administration / Administrator General's Certificate

→Account used only for funds related to the Estate of the deceased

→Account titled: individual name + 'Executor'/'Administrator' + 'Estate of (Name of deceased)'

→Funds disposed only in accordance with the Probate or Letter of Succession

→Executor/Administrator CANNOT delegate power to a third party

C. Co-operative Societies

→Examine rules and bye-laws — some states restrict opening accounts with commercial banks without Registrar's permission

→Resolution to open a bank account requires signatures of President, Secretary, and Treasurer — President and at least one of the remaining two must sign

→Section 32 of the Cooperative Societies Act, 1912 allows investment of funds with banks approved by the Registrar

→Account used only for funds related to the co-operative society

→Limits/restrictions as per relevant laws (max balance, opening with commercial banks) must be observed

D. Government & Public Bodies

Central government transactions follow the Central Government Compilation of Treasury Rules; state government transactions follow the State Financial Handbook. Banks handle: paying, receiving, collecting, and remitting money on behalf of government departments.

Aspect	Key Rules
Challans (Receipts)	Made in duplicate/triplicate. Must be passed by treasury/sub-treasury before presenting for payment. Valid for 10 days — revalidation needed after. Copies returned to depositor must be signed in full. Lost challan: no duplicate issued, only a certificate.
Payments	Government departments authorised to issue cheques within drawing limits. Self-drawings in cash allowed for salary and expenses. Special cheque books used. No overdraft allowed. Credit from budget allocations by ministries.
Refund Orders	Issued by central excise/customs/income tax departments. Bank must have both cheque AND advice at time of payment. Refund orders are quasi-negotiable and do not attract stamped discharge.
Personal Deposit Account	Some departments (forest, local funds, etc.) authorised by A.G. office can draw cheques directly at bank without treasury intervention. Opened as current accounts. Cheques valid for 3 months only.
Change in Authorised Officer	Fresh documentation based on suitable notifications required. Same account is continued.

Section 7

Current Account Norms, LEI & Quick Reference

A. RBI Norms for Opening Current Accounts (August 2020 / October 2021 Circular)

RBI replaced the older “No Objection Certificate” regime with a comprehensive system. The key principle: persons with no borrowing from any scheduled commercial bank (SCB) or payment bank face no restriction.Persons with credit facilities from NBFCs/FIs/co-operative banks only are also unrestricted.

Borrowers WITH CC/OD Facility

Banking System Exposure	Rule
Less than ₹5 crore	No restriction. Obtain undertaking to inform bank when exposure reaches ₹5 crore+.
₹5 crore or more	Can maintain current account only with ONE lending bank that has ≥10% of the banking system's exposure. Other lenders may open only 'collection accounts' — funds remitted within 2 working days to the CC/OD account bank. If no lender has ≥10%, the highest-exposure bank may open the current account. Non-lending banks: NOT permitted.

Borrowers WITHOUT CC/OD Facility

Banking System Exposure	Rule
₹50 crore or more	Escrow mechanism mandatory. Current account only with escrow-managing bank. Other lenders: collection accounts only (remit to escrow at agreed frequency). Non-lending banks: no current account.
₹5 crore – < ₹50 crore	Lending banks: no restriction on opening current accounts. Non-lending banks: collection accounts only.
Less than ₹5 crore	Any bank may open, with undertaking to inform if exposure reaches ₹5 crore+ or ₹50 crore+.
No banking credit facility	Any bank may open, subject to due diligence per Board-approved policy.

⚠️ Exam Traps — Current Account Norms

→Collection accounts: no restriction on number of credits; debits limited to remitting funds to escrow/CC/OD account

→Collection accounts: balances cannot be used as margin for non-fund-based credit facilities

→Term loan drawals: directly to suppliers/payee where identifiable — NOT routed through current account (except where payment destination is unidentifiable)

→Exposure includes: fund-based + non-fund-based + daylight overdraft + intra-day + irrevocable payment commitments + FX/interest rate derivatives limits + CPs, etc.

→Proprietorship firms: business borrowings (in firm name) + personal borrowings (in proprietor's name) are counted together

→Monitoring: at least half-yearly; changes in banking arrangement must be implemented within 3 months of monitoring

B. Photograph Requirements

→Photographs required for all depositors/account holders — residents and non-residents, including Pardanashin women

→Separate photograph not required if live photograph captured in Digital KYC process

→Photographs are NOT a substitute for specimen signatures

→Exempt: Banks, Local Authorities, Government Departments (excluding PSUs and quasi-government bodies); bank's own staff (single/joint accounts)

→Photographs must be recent; cost may be borne by the customer

→Only ONE set of two photographs for a customer — valid for all accounts opened subsequently

→Joint / partnership accounts: a set of photographs of EACH joint depositor/partner

→Institutions: photographs of EACH official authorised to open and operate the account

→Minor's SB account (aged 10+): minor's photograph required

→Minor's account operated by Guardian: Guardian's photograph also required

→HUF: photograph of the Karta only

→NRE / NRO / FCNR accounts: photographs of account holder AND POA/mandate holder

→If appearance changes during operations: recent photograph to be obtained and affixed at all appropriate places

C. Legal Entity Identifier (LEI)

The Legal Entity Identifier (LEI) is a 20-digit alpha-numeric code that uniquely identifies parties to financial transactions worldwide — conceived post the 2008 Global Financial Crisis for better risk management and data accuracy. In India, the LEI issuer is LEIL (Legal Entity Identifier India Ltd.)— a subsidiary of CCIL, accredited by GLEIF.

LEI Applicability — Key Points

OTC derivatives marketsMandatory for all participants in Rupee interest rate derivatives, foreign currency derivatives, and credit derivatives

Corporate borrowers from SCBs (excl. RRBs), LABs, SFBsAggregate fund-based + non-fund-based exposure ≥ ₹5 crore → mandatory LEI; to be captured in CRILC. Implemented for exposure ≥ ₹50 crore first.

UCBs and NBFCsLEI guidelines extended to Primary Urban Co-operative Banks and Non-Banking Financial Companies

Failure to obtain LEINo new exposure sanctioned; no renewal/enhancement of existing exposure

ExemptionDepartments/Agencies of Central/State Governments (excluding PSUs registered under Companies Act or statutory corporations) are exempted

RTGS and NEFT paymentsMandatory for non-individual entities initiating or receiving transactions of ₹50 crore and above

RBI-regulated marketsParticipants with net worth ≥ ₹2,000 million (non-individuals) in government securities, money markets, and non-derivative forex markets must obtain LEI. Non-residents also.

Capital/current account transactions under FEMAFrom Oct 1, 2022: AD Category I banks must obtain LEI from resident entities (non-individuals) for transactions ≥ ₹50 crore per transaction

LEI Timeline for Borrowers (Mandatory)

Total Exposure	LEI to be obtained on or before
Above ₹25 crore	April 30, 2023
Above ₹10 crore, up to ₹25 crore	April 30, 2024
₹5 crore and above, up to ₹10 crore	April 30, 2025

Quick-Reference: All Key Numbers & Rules for the Exam

Age of majority (Indian Majority Act, 1875)18 years

Minimum age for minor to open/operate account independentlyAbove 10 years

Two minors can open a joint account?No — not permitted

Guardian for minor's accountFather or Mother (RBI permitted); NOT step-parent, grandmother, elder brother

Illiterate person: current account allowed?No

Illiterate person: cheque book allowed?No — even in joint accounts

Blind person: legal bar on opening account?No legal bar

HUF Karta: can a woman be Karta?Yes — eldest female member (Delhi HC, 2015)

Daughters as coparceners in HUF (since)2005 amendment to Hindu Succession Act

Partnership registration (mandatory states)Gujarat and Maharashtra

Clayton's Rule: when to freeze account in partnership?On new partner admission with debit balance — freeze old a/c, open new one

Partnership: death of partner effect?Dissolves firm automatically (unless deed says otherwise)

LLP: death/retirement of partner effect on account?No effect — account continues (even with debit balance)

LLP partners' personal liability for firm dues?None

Private Ltd: maximum members200 (employees not counted)

OPC (One Person Company): members1 member + 1 Nominee

Government company: minimum government shareholding51% or more

Current account: no restriction for?Persons with no borrowing from any SCB/payment bank

Current account with CC/OD: ≥₹5 crore — bank must have?At least 10% of banking system exposure to allow current account

Current account without CC/OD: ≥₹50 crore — mechanism required?Escrow mechanism; current account only with escrow-managing bank

Monitoring frequency for current account complianceAt least half-yearly

Implementation of revised banking arrangement (after monitoring)Within 3 months

LEI: digit count20-digit alpha-numeric code

LEI issuer in IndiaLEIL (Legal Entity Identifier India Ltd.) — subsidiary of CCIL

LEI: RTGS/NEFT threshold for mandatory LEI₹50 crore and above (non-individual entities)

LEI: mandatory for borrowers with exposure ≥ ₹5 croreYes — to be captured in CRILC

Government challan validity10 days (revalidation required after)

Government department cheques validity3 months

CKYCR operator (also relevant here from Ch.3)CERSAI — upload within 10 days of account opening

PPB Chapter Navigation

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