What changed
RBI reviewed bilateral clearing agreements between banks and found they undermine the formal Clearing House system, increase costs, and delay settlement. The circular explicitly bans these arrangements—covering correspondent banking, cash management services, and any routine cheque clearing outside Clearing Houses—and warns that unauthorized operation of such payment systems is illegal under the Payment and Settlement Systems Act, 2007.
What it means for you
Urban co-operative banks must unwind all bilateral cheque-clearing deals immediately or face penal action under the Act. This closes a loophole where banks were exchanging post-dated cheques directly, bypassing the 1,139 Clearing Houses that process over 4 million cheques daily on a T+1 basis. Banks will now have to route all routine clearing through the formal infrastructure, ensuring uniform practices and reducing systemic risk.
What you must do
- Identify and list all bilateral clearing agreements—including correspondent banking, cash management, and ATM-sharing deals that involve cheque clearing outside Clearing Houses.
- Immediately discontinue all such arrangements and confirm compliance in writing to RBI.
- Review internal processes to ensure all routine cheque clearing is routed through the official Clearing House infrastructure.
- Seek legal advice on any existing agreements that may fall under the Payment and Settlement Systems Act, 2007, and apply for RBI authorization if continuation is necessary.
- Acknowledge receipt of this circular and submit a compliance confirmation to the Chief General Manager-in-Charge.
Who it affects
All Primary (Urban) Co-operative Banks, Banks with correspondent banking arrangements for cheque clearing, Banks using cash management services for bilateral clearing, Banks sharing ATMs or using ECS products outside Clearing Houses
What exactly is a bilateral clearing arrangement?
It is any agreement between two banks to clear cheques drawn on each other directly—without routing them through the official Clearing House. This includes correspondent banking deals, cash management services, and even ATM-sharing arrangements that involve cheque clearing.
Why is RBI banning these arrangements now?
RBI found that such parallel systems undermine the formal Clearing House infrastructure, increase costs, delay settlement, and can lead to disputes and systemic risks. They also violate the Payment and Settlement Systems Act, 2007, which requires RBI authorization for any payment system.
What happens if my bank continues such arrangements?
Continuing or starting bilateral clearing without RBI authorization is illegal and will invite strict penal action as provided under the Payment and Settlement Systems Act, 2007. Banks must immediately discontinue and confirm compliance.