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
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.