It has been observed UCBs are utilising at par cheque facility extended by Scheduled Commercial Banks not only for their own use but also for their customers, including walk-in customers, the central bank said in a notification.
An at par cheque is payable at any branch of the issuing bank, without any excess charges to the bearer of the cheque. Co-operative banks have been advised to utilise these cheques for only specific purposes, such as for their own use, for account holders who are compliant under know-your customer (KYC) norms, and for walk-in customers against cash worth less than R50,000 per individual, RBI said in a notification.
To utilise these, urban co-operative banks (UCBs) will have to maintain records pertaining the issuance of these "at par" cheques, while ensuring sufficient balances and drawing arrangements exist with the SCBs.
UCBs should also ensure that all "at par" cheques issued by them are crossed account payee irrespective of the amount involved, RBI said on its website. The central bank also advised co-operative banks to make use of more efficient means of remittances for the customers like NEFT or RTGS by providing such services directly or by becoming sub-members of banks providing such services.
"Since these banks don't have strong KYC procedures, any walk-in customer could deposit money, procure a cheque from them and get it encashed at a larger bank branch, making it a legal transaction. RBI has now put some restrictions in place, to help curb misuse of the system," said a senior official at a private sector bank.
Earlier, an RBI probe into an expose by news portal Cobrapost had thrown up instances where the facility of "at par" cheques may have been misused. In particular, cases were found where co-operative banks opened current accounts with commercial banks and issued a large number of at par cheques even to walk in customers. In its preliminary investigation, RBI had highlighted this could emerge as a systemic risk and added that procedures should be tightened to deal with potential risks.
Additionally, RBI had raised concerns that cooperative banks may be an easier conduit for facilitating substantial amounts of cash in entering the banking system.
Earlier this year, news portal Cobrapost had run sting operations which brought to light a series of malpractices across India's largest banks, including violations of KYC norms and anti money laundering norms. Along with penalising individual banks, RBI has announced a number of changes in rules and regulations to plug loopholes found in the banking system.