Penal Interest on Excess/Double Claims in State Govt Accounts
Current · Source: Reserve Bank of India · RBI/2021-22/75 · issued 02 Aug 2021 · ~2 min read
Quick answerAgency banks must now pay penal interest (Bank Rate + 2%) on excess put-through or double claims in State Government payment scrolls, from the date they received the excess amount until the day before returning it.
The rule, in the simplest words
If a bank pays extra money or pays twice by mistake in a State Government payment, the bank must pay a penalty (extra interest called 'penal interest').
The penalty is calculated at the Bank Rate (a rate set by RBI) plus 2% extra, from the day the bank got the extra money until the day before it gives the money back.
This rule applies to all agency banks (banks that handle State Government accounts) for any amount of extra payment, no matter how small.
Banks must fix the mistake quickly and return the extra money to the government account on the same day to avoid the penalty.
How it plays out — a real example
An agency-banking (government business) officer in Indore processes a payment scroll for the State Government and accidentally puts through a duplicate claim of ₹50,000. The bank received the extra money on Monday and returns it on Wednesday. The officer must now calculate penal interest at Bank Rate + 2% for Tuesday and Wednesday (excluding the return date) and pay it to the government, reminding her team to double-check scrolls to avoid such costly errors.
What changed
RBI, in consultation with the C&AG, has mandated penal interest on excess put-through or double claim amounts by agency banks in State Government transactions. Previously, only delayed credit of receipts attracted such interest; now excess payments also incur it. The interest period runs from the date the bank received the excess amount to the day before its return to the government account.
What it means for you
Banks handling State Government accounts face a new financial penalty for processing errors that lead to excess payments or duplicate claims. This tightens accountability and incentivizes faster correction of such mistakes. The penal interest rate (Bank Rate + 2%) is non-trivial and applies regardless of the amount involved, increasing operational risk for agency banks.
What you must do
Update internal SOPs for State Government transaction processing to prevent excess put-through and double claims.
Train branch staff on the new penal interest calculation and the need for immediate refund/credit to government accounts.
Implement monitoring mechanisms to track and rectify any excess payments within the same day to avoid interest charges.
Review and reconcile payment scrolls before submission to ensure accuracy.
Who it affects
All agency banks handling State Government transactions, Branches accredited to conduct State Government business, State Government treasuries and finance departments
❓ Common questions
What is the penal interest rate for excess put-through or double claims?
The rate is Bank Rate plus 2%, where Bank Rate is the rate notified by RBI at the time of the transaction.
From when does the penal interest period start and end?
It starts from the date the agency bank received the excess or double claim amount and ends the day before the actual return of that amount to the State Government account.
Does this apply to all amounts, no matter how small?
Yes, the circular states that the interest will be charged irrespective of the amount involved in such excess put-through or double claim.
📜 Read the original circular — full text as issued by RBI
RBI/2021-22/75
DGBA.GBD.No.S391/42.01.011/2021-22
August 02, 2021
The Chairman and Managing Directors/ Managing Director/ CEO
All Agency Banks
Dear Sir / Madam
Maintenance of State Government Accounts – Recovery of Interest on Excess put through/ Double claim (State Government Transactions)
Please refer to our circular RBI/2007/291 DGBA.GAD.No.H-14061/31.04.008/2006-07 dated March 21, 2007 vide which partial modifications were done in the para 5.11 of the "Memorandum of Instructions on Accounting and Reconciliation of State Government Transactions".
2. (a) With a view to ensure prompt/immediate refund/credit to the government account in the cases of excess put through/ double claim in the payment scrolls by the agency banks, it has been decided in consultation with the O/o Comptroller and Auditor General of India (C&AG) that penal interest for excess put through/ double claim amount may be levied by State Government as in the case of delayed credit of receipts.
(b).The penal interest period for such double claim/excess put through may start from the date on which the agency bank has received the excess put through / double claim amount and upto previous date to actual date of return of such excess put through / double claim amount by agency banks to concerned state government account (excluding the date of return of such excess payment/double claim amount by the agency banks to government account(s)).
(c) The rate of penal interest is Bank rate plus 2%. (The Bank Rate will be the rate notified by the RBI from time to time as applicable at the time of transaction).
3. These instructions will come into effect from date of issuance of this circular. The procedure for claiming/ recovering of delayed period interest will remain unchanged and it will be charged irrespective of the amount involved in such excess put through /double claim by agency banks.
4. You may bring the revised procedure to the notice of your branches accredited to conduct State Government transactions.
5. All the State Governments are being advised about the revised procedure.
Yours faithfully
R Kamalakannan
Chief General Manger
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2021-22/75 · issued 02 Aug 2021. The plain-English explanation above is BankPulse’s own independent summary.
Train branch staff on the new penal interest calculation and the need for immediate refund/credit to government accounts.
📜 Compliance
Update internal SOPs for State Government transaction processing to prevent excess put-through and double claims.
Implement monitoring mechanisms to track and rectify any excess payments within the same day to avoid interest charges.
Review and reconcile payment scrolls before submission to ensure accuracy.
Grouped from the action items above — a single circular may involve more than one team.
Worked example & action-note template
Example: if you are a Compliance officer at a bank this circular applies to (All agency banks handling State Government transactions, Branches accredited to conduct State Government business, State Government treasuries and finance departments), your first concrete step on “Penal Interest on Excess/Double Claims in State Govt Accounts” is: “Update internal SOPs for State Government transaction processing to prevent excess put-through and double claims.” (RBI issued this 02 Aug 2021).
Circular: RBI/2021-22/75 -- Penal Interest on Excess/Double Claims in State Govt Accounts
Issued: 02 Aug 2021
Action required: Update internal SOPs for State Government transaction processing to prevent excess put-through and double claims.
Action required: Train branch staff on the new penal interest calculation and the need for immediate refund/credit to government accounts.
Action required: Implement monitoring mechanisms to track and rectify any excess payments within the same day to avoid interest charges.
Action required: Review and reconcile payment scrolls before submission to ensure accuracy.
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.
💬 Banker Discussion
Discuss this circular with fellow bankers — reply, upvote what helps, report what doesn’t belong. Be professional; no client data. Views are the commenter’s own, not BankPulse’s.
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=12135&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.
Help us keep this accurate
Found an inaccuracy or have an improvement? Tell us. Every report is reviewed by our team before any change is made — nothing goes live unverified.
Public beta — plain-English informational summaries. Always verify against the official RBI source (circular number cited on every page) before making compliance, credit, treasury, audit, or operational decisions. · Join our WhatsApp channel ↗
BANKPULSE · FREE DAILY BRIEF
Get RBI updates for your role
Every important RBI update, decoded in plain English — for your career, exams & financial awareness.
We collect only your email, name and role, used solely to send your brief — never sold or shared. Withdraw anytime via the unsubscribe link in any email. Independent platform, not affiliated with the RBI. Information, not legal advice.
REPORT AN ERROR · BETA
Spotted an error? Earn 500 BankPulse Credits
Help us stay accurate. If your correction is verified true and approved by our founder, you earn 500 BankPulse Credits — redeemable when the platform monetises.
Reviewed by a human before any credit is awarded. We never change the site from crowd input without verification.
WANT A NEW FEATURE · BETA
What would make BankPulse more useful for you?
Tell us what to build next — a tool, a data view, a role page, anything. We read every suggestion.
Thank you — your ideas directly shape what we build.