RBI Tightens Due Diligence on Correspondent Banking with Co-op Banks
Current · Source: Reserve Bank of India · RBI/2013-14/342 · issued 29 Oct 2013 · ~2 min read
Quick answerRBI mandates commercial banks to treat 'at par' cheque facilities for cooperative banks as correspondent banking arrangements, requiring enhanced due diligence, risk assessment, and the right to verify KYC/AML compliance records.
The rule, in the simplest words
If a commercial bank gives a co-operative bank 'at par' cheques (cheques that are treated as the commercial bank's own), that is now called a 'correspondent banking' relationship (a special partnership between two banks).
The commercial bank must check the co-operative bank's bosses, what business it does, and if it follows rules against money laundering (hiding illegal money).
The commercial bank has the right to look at the co-operative bank's records to make sure it is following KYC (knowing who its customers are) and AML (anti-money laundering) rules.
The commercial bank must watch this relationship regularly for risks like credit risk (the co-operative bank might not pay back) and reputational risk (the commercial bank's good name could get hurt).
How it plays out — a real example
A KYC & compliance officer in Indore, Priya, manages a current account for a local co-operative bank that issues 'at par' cheques to its customers. After this new rule, Priya must now treat this as a correspondent banking relationship. She reviews the co-operative bank's management and checks their KYC records to ensure they are not involved in money laundering, updating her files to keep the arrangement safe and compliant.
What changed
RBI observed that commercial banks offering 'at par' cheque book facilities to cooperative banks were not treating these as correspondent banking relationships. The circular explicitly classifies such arrangements as correspondent banking, requiring banks to monitor and review them for credit and reputational risks. Banks must now retain the right to verify cooperative banks' KYC and AML compliance records.
What it means for you
Commercial banks must now apply the same rigorous due diligence to 'at par' facilities for cooperative banks as they do for other correspondent banking relationships. This includes assessing the cooperative bank's management, business activities, AML/CFT compliance, and purpose of the account. Banks face increased responsibility to ensure cooperative banks adhere to KYC/AML norms, reducing the risk of money laundering and fraud.
What you must do
Review all existing 'at par' cheque book arrangements with cooperative banks and reclassify them as correspondent banking relationships.
Conduct enhanced due diligence on cooperative banks, including their management, business activities, and AML/CFT compliance status.
Update internal policies to include the right to verify KYC/AML records of client cooperative banks under these arrangements.
Monitor and assess credit and reputational risks arising from these correspondent banking relationships periodically.
Who it affects
All scheduled commercial banks (excluding RRBs), Cooperative banks using 'at par' cheque facilities, Compliance and risk management teams of commercial banks
❓ Common questions
What is an 'at par' cheque facility in this context?
It is a facility where a cooperative bank opens a current account with a commercial bank and uses the cheque book to issue 'at par' cheques to its customers for remittances and payments, effectively using the commercial bank's credit standing.
Why is RBI treating this as correspondent banking?
Because the commercial bank is providing banking services to another financial institution (cooperative bank) on behalf of its customers, which mirrors the structure of correspondent banking and carries similar risks.
What happens if a cooperative bank fails KYC/AML compliance?
The commercial bank must have the right to verify records and can terminate or restrict the arrangement to mitigate credit and reputational risks.
📜 Read the original circular — full text as issued by RBI
RBI/2013-14/342
DBOD.AML.BC.No.63/14.01.001/2013-14
October 29, 2013
The Chairmen / Chief Executive Officers of
All Scheduled Commercial Banks (excluding Regional Rural Banks)
Dear Sir,
Due diligence in correspondent banking relationship.
Please refer to paragraph 2.16 of our Master Circular DBOD. AML.BC.24/14.01.001/2012-13 dated July 1, 2013 on ‘Know Your Customer (KYC) Norms / Anti-Money Laundering (AML) Standards/ Combating of Financing of Terrorism (CFT) / Obligation of banks under PMLA, 2002’ in terms of which banks have been advised to carry out detailed due diligence while entering into correspondent banking arrangements, including information on the other bank’s management, major business activities, level of AML/ CFT compliance, purpose of opening the account, identity of any third party entities that will use the correspondent banking services etc. Further, banks may refer to our circular DBOD.No.BP.BC.24/21.01.023/98 dated March 30, 1998 on ‘Frauds in Banks/ Grant of ‘At Par’ facility for Dividend/ Interest Warrants and Refund Orders’, in terms of which banks have been advised to put in place adequate internal control mechanism to safeguard their interests while determining the policy regarding ‘at par’ facility with the approval of their respective Boards.
2. It has been observed that some commercial banks have arrangements with co-operative banks wherein the latter open current accounts with the commercial banks and use the cheque book facility to issue ‘at par’ cheques to their constituents and walk-in- customers for facilitating their remittances and payments. Since the ‘at par’ facility offered by commercial banks to co-operative banks is in the nature of correspondent banking arrangements, banks should monitor and review such arrangements to assess the risks including credit risk and reputational risk arising therefrom. For this purpose, banks should retain the right to verify the records maintained by the client cooperative banks/ societies for compliance with the extant instructions on KYC and AML under such arrangements.
Yours faithfully,
(Prakash Chandra Sahoo)
Chief General Manager
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2013-14/342 · issued 29 Oct 2013. The plain-English explanation above is BankPulse’s own independent summary.
Example: if you are a Compliance officer at a bank this circular applies to (All scheduled commercial banks (excluding RRBs), Cooperative banks using 'at par' cheque facilities, Compliance and risk management teams of commercial banks), your first concrete step on “RBI Tightens Due Diligence on Correspondent Banking with Co-op Banks” is: “Review all existing 'at par' cheque book arrangements with cooperative banks and reclassify them as correspondent banking relationships.” (RBI issued this 29 Oct 2013).
Circular: RBI/2013-14/342 -- RBI Tightens Due Diligence on Correspondent Banking with Co-op Banks
Issued: 29 Oct 2013
Action required: Review all existing 'at par' cheque book arrangements with cooperative banks and reclassify them as correspondent banking relationships.
Action required: Conduct enhanced due diligence on cooperative banks, including their management, business activities, and AML/CFT compliance status.
Action required: Update internal policies to include the right to verify KYC/AML records of client cooperative banks under these arrangements.
Action required: Monitor and assess credit and reputational risks arising from these correspondent banking relationships periodically.
Owner: ____________ Target date: ____________
Board/committee approval needed? Y / N
Evidence filed in compliance register on: ____________
Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.
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BankPulse Compliance Evidence Pack — generated 03 Aug 2026 · status cross-checked against RBI’s official withdrawal register (refreshed weekly). Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=8536&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
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