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 you must do
- 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
Can a bank credit an account payee cheque to a co-operative credit society's account if the society is the payee?
No, the rule prohibits crediting proceeds to any person other than the payee named on the cheque. If the society is not the payee, it cannot receive the funds.
What is the exception for clearing house sub-members?
A member bank can collect account payee cheques deposited with a sub-member for credit to the sub-member's customer, but only if the member bank gives an undertaking that proceeds will go to the payee's account upon realisation.