RBI pulls up co-op banks for illegal clearing house ops

The Reserve Bank has come down heavily on state and Central co-operative banks for keeping away from the regular clearing house infrastructure...

Written by Express News Service | Mumbai | Published: February 19, 2010 1:29:06 am

The Reserve Bank has come down heavily on state and Central co-operative banks for keeping away from the regular clearing house infrastructure and,in turn,entering into illegal bilateral agreements among banks. Directing all co-operative banks to immediately discontinue all bilateral clearing arrangements arising out of normal banking transactions,the RBI said,“The parallel clearing arrangements vitiate the Clearing House rules,standard,minimum benchmarks and uniform practices. Malpractices and disputes between banks can exacerbate into systemic concerns.”

After a detailed review,the RBI has concluded that such agreements — also styled as corresponding banking arrangements by some banks —– undermine the existence and need of clearing houses and do not in any way contribute to the efficiency of the clearing system. “In fact,the banks incur higher costs and take longer time to clear the cheques bilaterally,” it said.

During the recent annual financial inspection of a bank,the RBI’s department of banking supervision had observed that banks had entered into bilateral agreements with other banks for processing and clearing of post dated cheques deposited with it and payable by the other banks. Under the agreement,the bank was sending such PDCs directly to the other bank for realisation and receiving proceeds thereof by credit to its current account opened with the other bank. Similar facility was extended to the other bank for clearing PDCs drawn on this bank as well. “On enquiring with a few other banks,it is ascertained that a number of similar bilateral agreements exist between/ among banks and in the process,significant volume of instruments was getting exchanged and cleared outside the clearing house infrastructure,” the RBI said.

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