MUMBAI, June 11: The Reserve Bank of India (RBI) has asked commercial banks to stop extending `at par' encashment facility for dividend/interest warrants and refund orders in all the branches and allow this system only in select branches where computer processing facilities are available.

The RBI move follows irregularities related to issue of refund orders and interest warrants worth crores of rupees in respect of public deposits with CRB Capital Markets. Banks allow `at par' facility whereby the person depositing the interest warrant will be able to encash it faster (as it will be treated as local cheques) without paying any commission to the bank.

Tightening the norms for encashment of interest warrants, the central bank has asked banks to ensure that pre-funding of the account by a company must be ensured at all times and reviewed by the controlling branch on a daily basis. This means banks will have to ensure that money is already deposited in the account of the company in the bank before the former sends it to deposit-holders.

CRB Capital entered into an arrangement with the Mumbai main branch of SBI in June last year for encashment of interest warrants and repayment of principal (on maturity) to its fixed deposit holders accross the country. It was detected that about Rs 57 crore worth of interest and principal amount was siphoned off from SBI over and above the upfront fund provided by CRB.``Although the bank (SBI) had granted the facility, inter alia, on the condition that the relative accounts should be prefunded by the company so as to ensure sufficient balance for making payments, the company had not adhered to this condition and the banks too could not keep proper track of the situations as the `at par' facility was extended at branches all over India,'' RBI said in a circular issued to commercial banks.

A similar type of fraud was earlier reported to RBI in the case of refund orders of the capital issues by West Coast Brewers and Distillers Ltd and New Beam Ferro Alloys Ltd where `at par' facility was granted by a bank. The modus operandi of that fraud was brought to the notice of banks on June 7, 1994, and the banks were thus duly cautioned. ``Had the caution advice been taken seriously by banks, the recent fraud would not have taken place,'' RBI said in the circular.

According to RBI, no instrument payable `at par' at the selected branches should be for more than a sum agreed but in any case not exceeding Rs 10,000. ``Payments exceeding this amount may be made by the party by means of bank drafts,'' it said.

In order to avoid CRB-type scams, the RBI has suggested that a master list of the persons in whose favour the orders/warrants have been issued along with the serial number of the warrant and the amount thereof should be obtained centrewise in advance. ``While entering into an arrangement, it should be stipulated that the refund orders/ interest warrants/dividend warrants should be paid only at the specified dedicated branches, not exceeding 100,'' RBI said.

The company should advise the refund order/interest warrant/dividend warrant holders the designated centre where the orders/warrant should be sent for encashment, compile the branch-wise list of payees/amounts and fund the controlling branch as per the master list on day one, RBI said. The controlling branch should ensure that the account remains in credit throughout and no hidden overdrafts are created either at their branch or the paying branch.

There should be a memorandum of understanding between the bank and the issuing company incoporating the terms and conditions of the `at par' facility, RBI said.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.