What changed
RBI reviewed bilateral clearing agreements between banks, including those for post-dated cheques, and found they undermine Clearing House infrastructure, increase costs, and create risks. The central bank now mandates that RRBs discontinue all such arrangements immediately, as they require RBI authorization under the Payment and Settlement Systems Act, 2007.
What it means for you
RRBs must stop direct cheque clearing deals with other banks and route all instruments through official Clearing Houses. Non-compliance invites strict penal action under the Act. This tightens oversight and reduces systemic risk, but may increase operational costs for RRBs that relied on bilateral deals for speed.
What you must do
- Immediately identify and terminate all bilateral clearing agreements with other banks, including those for post-dated cheques, correspondent banking, and cash management services.
- Route all cheque clearing through the official Clearing House infrastructure to comply with RBI norms.
- Ensure no new bilateral clearing arrangements are entered into without prior RBI authorization.
- Acknowledge receipt of this circular to your respective RBI Regional Office for compliance.
- Review internal processes to align with the Payment and Settlement Systems Act, 2007, and avoid penal action.
Who it affects
All Regional Rural Banks (RRBs), Banks with bilateral clearing or correspondent banking arrangements, Clearing House operators and participants
What exactly are bilateral clearing arrangements?
They are direct agreements between two banks to clear cheques (like post-dated cheques) without using the official Clearing House, often involving direct credit to current accounts.
Why has RBI banned these arrangements?
RBI found they undermine Clearing House efficiency, increase costs, delay settlements, and pose systemic risks. They also violate the Payment and Settlement Systems Act, 2007, which requires RBI authorization for such payment systems.
What happens if an RRB continues such arrangements?
Continuation without RBI authorization is a violation of the Act and invites strict penal action as per its provisions.