What changed
RBI issued a directive under Section 35A of the Banking Regulation Act, 1949, reinforcing that account payee cheques must only be collected for the payee named. This follows observations of banks crediting individual refund orders to broker accounts during IPO processes, enabling manipulation.
What it means for you
Banks must strictly adhere to the payee-only rule for account payee instruments, eliminating any practice of crediting such proceeds to third parties even on request. Non-compliance exposes banks to legal liabilities and operational risks, and undermines payment system integrity.
What you must do
- Review and update internal policies to ensure account payee cheques are credited only to the payee's account.
- Train staff on the prohibition and the risks of deviating from this rule, especially during IPO or refund processes.
- Implement system-level controls to prevent crediting of account payee instruments to third-party accounts.
- Conduct audits to identify and rectify any past deviations from this directive.
Who it affects
State Co-operative Banks (StCBs), District Central Co-operative Banks (DCCBs), Regional Rural Banks (RRBs)
Can we credit an account payee cheque to a third party if the payee requests it?
No. RBI explicitly prohibits crediting account payee cheques to any person other than the payee named, regardless of requests. This is to prevent misuse and maintain payment system integrity.
What are the consequences of violating this directive?
Banks face legal liabilities under the Negotiable Instruments Act and potential regulatory action under Section 35A of the Banking Regulation Act. Past deviations have facilitated fraud and manipulation.
Does this apply to all types of account payee instruments?
Yes, the directive covers all account payee cheques, including refund orders, and applies to StCBs, DCCBs, and RRBs as specified in the circular.