What changed
RBI observed non-uniform practices among RRBs in accounting for remittance facility liabilities with correspondent banks. It clarified that the accepting bank's liability extinguishes only when the correspondent bank honours the draft, not upon fund transfer. Correspondent banks must now classify such funds as liabilities to the banking system, not to others.
What it means for you
RRBs must ensure that outstanding drafts under remittance schemes are included in NDTL calculations, increasing their CRR/SLR requirements. Correspondent banks can net these liabilities against inter-bank assets, potentially reducing their own reserve requirements. This standardizes accounting and prevents under-reporting of liabilities.
What you must do
- Review all remittance facility arrangements with correspondent banks to identify unpaid drafts.
- Include the balance of unpaid drafts issued under remittance schemes as outside liabilities in NDTL for CRR/SLR.
- Ensure correspondent banks classify received funds as liabilities to the banking system, not to others.
- Update internal systems to track and report these liabilities accurately.
- Acknowledge receipt of this circular to the respective RBI Regional Office.
Who it affects
All Regional Rural Banks (RRBs), Correspondent banks (primarily sponsor banks) of RRBs, RBI regional offices monitoring RRB compliance
When does the liability of an RRB for a remittance draft extinguish?
The liability extinguishes only when the correspondent bank honours the draft issued to the customer, not when funds are transferred to the correspondent bank.
How should correspondent banks classify funds received from RRBs under remittance schemes?
Correspondent banks must show these as 'Liabilities to the Banking System' and can net them off against their inter-bank assets.