Ban on Crediting Account Payee Cheques to Third Parties for Co-op Banks

What changed

RBI observed that some co-operative banks were collecting third-party account payee cheques for co-operative credit societies. The circular clarifies that while this practice remains prohibited, a workaround is allowed: a member bank of the Clearing House can collect such cheques from a sub-member, provided the sub-member gives a written undertaking to credit proceeds only to the payee's account.

What it means for you

Co-operative banks must stop any direct crediting of account payee cheques to accounts other than the named payee. The new arrangement lets member banks handle cheque collection for sub-members, but only with a strict undertaking to protect the payee's interest. This tightens compliance and reduces fraud risk in the co-operative banking sector.

What banks were required to do at the time

• Review your bank's current practice of collecting account payee cheques for co-operative credit societies and ensure no direct third-party crediting occurs.
• If your bank acts as a sponsor member for sub-members, obtain a clear written undertaking from each sub-member that proceeds will be credited only to the payee's account upon realisation.
• Update internal policies and staff training to reflect this prohibition and the permitted collection mechanism with undertakings.
• Monitor sub-member compliance to ensure undertakings are honoured and report any deviations to RBI.

Who it affects

All State Co-operative Banks (StCBs), All District Central Co-operative Banks (DCCBs), Co-operative credit societies that are sub-members of clearing houses, Member banks (sponsor members) of clearing houses dealing with sub-members