What changed
RBI partially modifies its February 2003 instructions on State Government account settlement. The new circular aligns State Government transaction timelines with existing Central Government rules: T+3 working days for local transactions and T+5 for outstation transactions, using the RBI calendar. Delayed period interest is now calculated from the day after the prescribed put-through date, not from the transaction date.
What it means for you
Banks handling State Government accounts must tighten internal processes to meet stricter settlement deadlines or face interest penalties. The uniform framework simplifies compliance but increases operational pressure, especially for outstation branches. Interest on delays is now more punitive for larger amounts (Bank Rate + 2%), while smaller transactions have a grace period of 5 calendar days at Bank Rate only.
What you must do
- Update internal SOPs for State Government transactions to enforce T+3 (local) and T+5 (outstation) settlement timelines using RBI's working day calendar.
- Train branch staff on the new delay interest calculation: actual delay period starts from the day after the put-through date, not the transaction date.
- Monitor transactions of Rs.1 lakh and above separately to avoid higher interest at Bank Rate + 2%.
- Ensure focal point branches and collecting branches coordinate effectively to meet settlement deadlines.
- Communicate revised procedures to all branches accredited for State Government business before April 1, 2007.
Who it affects
All Public Sector Banks (excluding IDBI Bank Ltd.), Branches handling State Government tax and non-tax receipts, Focal point branches for State Government accounts, Treasury and operations teams managing government transaction settlements
What is the new timeline for settling State Government transactions with RBI?
Local transactions (same city/agglomeration) must settle within T+3 working days, and outstation transactions within T+5 working days, where T is the day money is available to the bank branch. The RBI calendar determines working days.
How is delayed period interest calculated under the revised rules?
Interest is charged for the actual delay period starting from the day after the prescribed put-through date. For transactions of Rs.1 lakh and above, the rate is Bank Rate + 2%. For smaller amounts, delays up to 5 calendar days attract Bank Rate only; beyond 5 days, the full delay period is charged at Bank Rate + 2%.
When does the revised procedure take effect?
The new rules come into effect from April 1, 2007. Banks must ensure compliance from that date for all State Government transactions.