Agency Commission Master Circular 2011: Key Updates for Banks

RBI/2011-12/97 DGBA.GAD. No.H. 3 /31.12.010/2011-12 1 July 2011 All Agency Banks Dear Sir / Madam Master Circular on Conduct of Government Business by Agency Banks - Payment of Agency Commission Reserve Bank of India has been issuing various instructions on Agency Commission payable to banks from time to time. These instructions were contained in our master circular RBI/2009-10/89 ( DGBA.GAD. No.H-4/ 31.12.010/ 2010-11 ) dated July 1, 2010. A copy of the revised  circular is enclosed .You may also access the circular on the Bank's website.  www.mastercirculars.rbi.org.in 2.  Please acknowledge receipt. Yours faithfully (B.K. Mishra) General Manager Encl: As above MASTER CIRCULAR ON AGENCY COMMISSION 1. Agency Commission - Revised Rates [ RBI/2005-06/77 (Ref: DGBA.GAD. No. 379/31.12.010 (C)/2005-06)  dated July 25, 2005 ] [ RBI/ 2005-06 /384(Ref: DGBA. GAD. No.17585/ 31.12.010  (C)/2005-06)  dated May 8, 2006 ] The agency commission payable to agency banks was revised from turnover (value) basis to transaction basis w.e.f.  July 01, 2005 [vide our circular  RBI/2005-06/77 (DGBA.GAD. No. 379/31.12.010 (C)/2005-06) dated July 25, 2005 ].  A review in this regard was made on the basis of representations received from the banks. Accordingly, it has been decided to modify the rates as below which would be effective from July 01, 2005: a)  Receipts  ….   Rs.45/- per transaction b)  Payments other than pension    ….  9  paise per Rs. 100/- turnover c)  Pension payments   ….   Rs.60/- per transaction The quality of service rendered by agency banks will be monitored by RBI with special emphasis on service rendered by banks to pensioners. As the agency commission on receipts and pension payments is payable on ‘per transaction’ basis, the agency banks were advised to maintain necessary records for claiming such commission which shall be made available to Reserve Bank or its authorized agencies for verification at any point of time. For calculating the number of transactions, the daily branch scroll rendered to the Government Accounting authorities will be reckoned.  Transactions reported in the ‘Error scrolls’ shall not be eligible for agency commission. Transactions in regard to bank’s own statutory liability for recovery/payment of various taxes as an assessee will not qualify for payment of agency commission. Prescribed certificate to this effect should be furnished by the banks while claiming the commission. 2.   Agency Commission - Public Provident Fund Scheme, 1968 (PPF) and Senior Citizen Savings Scheme 2004 (SCSS) [ RBI/2006-07/289 (Ref: DGBA.GAD.No.H-14024/31.12.010/ 2006-07) dated March 16, 2007 ] The issue of payment of agency commission by Reserve Bank of India for handling PPF and SCSS was examined in consultation with Government of India and it was decided to follow only one channel of payment of remuneration to banks for handling transactions under PPF and SCSS. Accordingly, Reserve Bank of India will pay agency commission on transactions relating to PPF and SCSS at the following rates: Receipts - Rs.45/- per transaction Payments - 9 paise per Rs. 100/- turnover With the revision of the rates as above, Government of India will discontinue the payment of remuneration for managing PPF and SCSS. 3. Agency Commission claims by banks on PPF and SCSS transactions [ RBI/  2006-07 / 408 (Ref: DGBA.CDD.No. H- 16532 /15.15.001 /2006-07) dated May 21, 2007 ] With a view to bringing uniform practice in claiming of agency commission, in respect of PPF and SCSS transactions, guidelines were issued and a format for claiming the agency commission was prescribed. All agency banks were advised to submit their agency commission claims on PPF and SCSS in the formats Annex I and II and summary of the claims as per Annex III. The agency commission is payable on PPF w.e.f. July 1, 2005 and on SCSS from April 1, 2006. All such claims with its arrears due up to March 31, 2007 shall be submitted by agency banks latest by June 10, 2007. Since there will be only one channel of agency commission payable, the remuneration, if any, already paid by GOI will be recovered by the Bank. 4. Government transactions eligible for Agency Commission [ RBI/2004/305 (Ref: DGBA.GAD.No.H-2625 -2658/ 31.12.010(C) /2004-05)  dated December 17, 2004 ] [DGBA.GAD.No. H- 8852 /31.12.010(C)/2010-11 dated June 21 , 2011] The following transactions undertaken by agency banks will be eligible for agency commission : Revenue receipts and payments on behalf of the Central/State Governments Pension payments in respect of Central Government and State Governments Special Deposit Scheme (SDS) 1975, Public Provident Fund (PPF) scheme Senior Citizen Savings Scheme (SCSS) Any other item of work specifically advised by Reserve Bank as eligible for agency commission (viz. Relief Bonds/ Savings Bonds etc. transactions) The short term/long term borrowings of State Governments raised directly from financial institutions and banks etc. are not eligible for agency commission as these transactions are not considered to be in the nature of general banking business.  Reserve Bank pays the agency banks separate remuneration as agreed upon for acting as agents for management of public debt. It is reiterated that transactions arising out of Letter of Credit (L/C) opened by banks on behalf of Ministries/Departments etc. will not qualify for agency commission. However, in the context of references received from some of the agency banks, the issue of collection of Stamp Duty by banks as an eligible item for agency commission has been examined by us and it has been decided to treat the Government transactions regarding collection of Stamp Duty by agency banks as an eligible item for agency commission as detailed below: Whenever agency banks collect stamp duty through physical mode or e-mode (challan based), they are eligible for payment of agency commission, provided the agency banks do not collect any charges from the members of public or receive remuneration from the State Government for doing this work. As regards the franking activity, if the agency bank is engaged by the State Government as Franking Vendor and it collects the stamp duty from the public for franking the documents, it will not be eligible for agency commission since the State Government is paying commission to it as Franking Vendor. However, the agency bank which  collects  the stamp duty paid by the Franking Vendor for credit to the Treasury through challan in physical or e-mode for purchase of the franking bar,  would be eligible for agency commission since it is a regular payment of Stamp Duty as stated under item (i) above. All agency banks while claiming Turnover Commission (ToC) should certify that no claim of ToC is made on ineligible transactions. 5. Scheme for Acceptance of Income/Other Direct Taxes and Profession Tax/Other Taxes of State Government through Agency Banks [ RBI/2004/64 (Ref: DGBA.GAD.No.H - 41/42.02.001/2003-04) dated July 22, 2004] [RBI/2004/248 (Ref: DGBA.GAD.No.H-1225-1258/42.02.001/ 2004-05) dated October 27, 2004] [RBI/2004-05/344 (Ref: DGBA.GAD.No.H-3568-3601/42.01.001/2004-05) dated January 13, 2005] Agency banks paying their own tax liabilities through their own branches or through authorised branches of State Bank of India or offices of Reserve Bank of India wherever they do not have their own authorised direct tax collection branch should indicate the same separately in the scroll. Such transactions will not be eligible for payment of agency commission. Banks should furnish a certificate to the effect that own tax liabilities (TDS, Corporation Tax, etc.) paid by them has been excluded while claiming Agency commission. 6. Deduction of TDS on Agency Commission [DGBA.GAD.No. H-190/31.12.010/2003-04 dated   September 14, 2003] [DGBA.GAD.No. H-6670/31.12.010(C)/2010-11 dated March 24, 2011] It has been decided by Central Board of Direct Taxes that tax would not be required to be deducted by Reserve Bank on the amount of agency commission paid or credit by it to its agents.  The Central Board of Direct Taxes vide their Office Memorandum F.No.275/20/2011-IT(B) dated 14th March, 2011 have further  clarified that ‘tax would not be required to be deducted by RBI on the turnover commission paid or credit by it to agency banks for transacting general banking business of the Central Government and State Government’.  It is, however, reiterated that agency commission would be taxable in the hands of the banks concerned as it is part of the bank’s income. 7. Conduct of Government Business by Agency Banks – Payment of Agency Commission - Format for claiming agency commission by banks [RBI/ 2005/147 (Ref: DGBA. GAD. No. H-751/31.12.010 (C)/2005-06) dated August 30, 2005 and [DGBA. GAD. No. H-19378/31.12.010 (C)/2005-06 dated June 6, 2006] A format for claiming agency commission by the agency banks (other than SBI) has been devised.  Further, a separate format for claiming agency commission on account of payment of interest and/or redemption value in respect of Relief Bond/Saving Bond has also been devised.  Agency banks are required to submit their claims for agency commission in the prescribed format. [DGBA. GAD. No. H-754/31.12.010 (C)/2005-06 dated August 30, 2005] State Bank of India is required to submit their claim in the format prescribed vide our letter DGBA. GAD. No. H-754/31.12.010 (C)/2005-06 dated August 30, 2005 as amended vide circular dated June 6, 2006 referred to above. 8. Agency Commission claims submitted by agency banks – common irregularities – charging of penal interest for wrong claims [RBI/2005/193 (Ref: DGBA.GAD. No. H-4530/31.12.010(C)/2005-06) dated October 27, 2005] [DGBA. GAD. No. H-11136/31.12.010(C)/ 2005-06 dated January 31, 2006] [DGBA.GAD.No. H-13118/31.12.010 (C)/ 2005-06 dated March 2, 2006] Agency banks were advised about the common irregularities observed in our snap verification of agency commission claims submitted by a few agency banks.  The banks are required to take due care while lodging claims for agency commission and ensure that they are accurate. In order to avoid wrong claims, they should get the information certified by their internal/ concurrent auditor. Agency banks will be liable to pay penal interest at Bank Rate (as notified by RBI as on 1st May and 1st November each year) plus 2% for any wrong claims of agency commission settled. 9. Agency Commission on Special Deposit Scheme [DGBA.GAD. No. H-11794/31.12.010 (C)/2005-06 dated February 13, 2006] The transactions under SDS-1975 are eligible for agency commission on par with ‘Payments other than pension‘.  As such, agency banks are eligible for agency commission at the rate of 9 paise per Rs. 100 turnover on such transactions. Since fresh deposits under the scheme are no longer allowed, the current transactions on account of SDS- 1975 would be – allowing obligatory withdrawals as and when a request in this regard is received from the Fund; interest payment at annual rates and closure of account as provided for in the Scheme. 10. Agency Commission on the pension transactions [DGBA.GAD.No.H.13034/31.12.010(C)/2006-07 dated February 27, 2007] Agency banks would be eligible to claim agency commission for pension transactions at the rate of Rs.60/- per transaction only when the entire work relating to disbursement of pension including pension calculation is attended to by the agency bank. If the work relating to pension calculations, etc, is attended to by the concerned Government Department/ Treasury and the bank branches are required only to credit the amount of pension to the pensioners' accounts maintained with them by a single debit to Government Account, such transaction is to be categorized under ‘other than pension payment’ and would be eligible for payment of agency commission @ 9 paise per Rs.100/- turnover. 11.  Abnormal increase in Agency Commission claims [DGBA.GAD.No.H.1800/31.12.010(C)/2009-10 dated August 21, 2009] Agency banks are required to ensure that agency commission claims submitted to the Regional Offices of Reserve Bank of India / Central Accounts Section, Nagpur in the prescribed format are accurate. Further, the information contained in the claim applications made by their branches should be certified by the Internal / Concurrent Auditors so as to avoid wrong claims. However, our Regional Offices had reported to us that some of the agency banks have submitted wrong / erroneous claims of large amounts duly certified by their Internal / Concurrent Auditors. Such erroneous claims, if certified by the Internal / Concurrent Auditors, will defeat the very purpose of making such requirement as an essential condition of making the quarterly claims. In view of this agency banks are requested to alert their branches concerned to ensure that agency commission claims submitted to our Regional Offices are accurate. Agency banks were also advised to arrange for the snap scrutiny of agency commission claims submitted for the period of one / two years during the Internal Inspection / Audit of the branches concerned. Agency banks are required to monitor the said exercise and take periodical review of progress made in this regard. 12.  Agency Commission claims to be certified by the External Auditor [DGBA.GAD.No.H.3903/31.12.010(C)/2009-10 dated November 11, 2009] We observe that despite the instructions, our Regional Offices continue to receive wrong / excess claims from agency banks. It has, therefore, been decided that henceforth agency commission claims submitted by agency banks are required to   be audited and certified by an External Auditor (Chartered Accountants) before submission to the Reserve Bank of India. Where the External auditor is also the Concurrent auditor / statutory auditor then the claims can be certified by such concurrent auditor / statutory auditor. Accordingly, agency banks were advised that all agency commission claims being submitted to our Regional Offices should be duly certified by an External Auditor (Chartered Accountants).The agency commission claims submitted to our Regional Offices must be accompanied by a certificate stating that the claims have been audited and found correct by an External auditor (Chartered Accountants). In addition to this, agency banks are required to ensure that the agency bank’s Internal Inspectors / Auditors verify the agency commission claims submitted by their branches and confirm their accuracy during the course of their Inspection / Audit. 13. Agency Commission claims to be certified by the External Auditor [DGBA.GAD.No.H.160/31.12.010(C)/2010-11 dated July 7, 2010] The agency banks were advised that their agency commission claims have to be audited and certified by the External Auditor (Chartered Accountants) before submission to RBI. However, such external auditor’s certificate should inter-alia state that: ‘receipt’ and ‘pension payment transactions’ as also the agency commission claims for ‘payments other than pension payments’ indicated in the agency commission claim application submitted to the RBI are tallied with the records maintained at the concerned branch/es of the  agency bank; and the agency commission claims made in respect of volume (number) based transactions viz. ‘receipt’ and ‘pension payment transactions’ have been claimed only once and the same stands excluded while arriving at value based transactions in respect of ‘payments other than pension payments’. List of circulars consolidated in the Master Circular Sr. No.

Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2011-12/97 · issued 01 Jul 2011. The plain-English explanation above is BankPulse’s own independent summary.

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