Ban on Crediting Account Payee Cheques to Third Party Accounts

What changed

RBI reiterated that banks cannot credit 'account payee' cheques to third party accounts. It specifically noted that banks are not permitted to collect third party account payee cheques on behalf of co-operative credit societies. It clarified that for clearing house arrangements, member banks can collect account payee cheques deposited with sub-members for credit to customers' accounts, provided there is an undertaking that proceeds will be credited only to the payee's account upon realisation.

What it means for you

Banks must ensure strict adherence to the payee-only rule for account payee cheques, especially when dealing with co-operative credit societies. Non-compliance could lead to regulatory action. This tightens cheque collection processes to prevent diversion of funds.

What banks were required to do at the time

• Review and update internal policies to prohibit crediting account payee cheques to third party accounts, including through co-operative credit societies.
• Ensure all clearing house arrangements with sub-members include a written undertaking that proceeds will be credited only to the payee's account.
• Train staff on the prohibition and monitor transactions for any violations, particularly involving co-operative credit societies.

Who it affects

All commercial banks (excluding RRBs), Clearing house member banks and sub-members