Executive Summary:
The Reserve Bank of India (RBI) is discontinuing the "Paper to Follow" (P2F) requirement for State Government cheques to enhance cheque clearing efficiency, following the successful discontinuation for Central Government cheques in 2016. Effective for cheques issued from July 1, 2019, this change requires agency banks to process and preserve cheque images electronically, with physical cheques retained by the presenting bank. State Governments must consent to this change, with a possible parallel run period.
Key Points / Main Content:
* **Discontinuation of P2F:**
* The requirement to forward paid State Government cheques in physical form (P2F) to State Government departments/treasuries is discontinued.
* This circular is an addendum to the Memorandum of Instructions on Accounting and Reconciliation of State Government transactions February 2003.
* **Cheque Truncation System (CTS) and Responsibilities:**
* Government cheques will be paid solely based on electronic images in CTS clearing.
* Presenting and drawee banks must fulfill their duties under relevant Acts/Regulations/Rules.
* Presenting banks retain physical cheques.
* Drawee banks can return images unpaid if physical verification is desired ("present with document"). The presenting bank must then re-present the physical instrument without reference to the account holder/payee.
* **Preservation of Cheques and Images:**
* Presenting banks must securely preserve physical instruments for 10 years (longer if required for investigation).
* Drawee banks must preserve images of all government cheques for 10 years, either themselves or through NPCI's National Archival System.
* Truncated images of cheques paid across the counter must be captured separately and preserved.
* A daily electronic file of paid cheque images must be created for transmission to State Government Departments/Treasuries/Sub-Treasuries.
* **Payment Scrolls and Information Provision:**
* Branches handling State Government transactions continue sending daily Payment Scrolls.
* Paid cheques are not attached to the payment scroll.
* Electronic images of paid cheques are provided to the Office of AG/State Government Departments/Treasuries/Sub-Treasuries via secure electronic communication.
* **Physical Cheque Retrieval:**
* The Office of AG/State Government Departments/Treasuries/Sub-Treasuries may request physical cheques for reconciliation, enquiry, or investigation.
* The dealing branch must furnish cheques paid by cash and transfer immediately and those paid via clearing within a reasonable timeframe.
* The presenting bank must comply with requests for physical cheques from the Office of AG/State Government Departments/Treasuries/Sub-Treasuries/drawee bank.
* **CTS Operation:**
* Government cheques drawn on RBI agency banks must be presented in the grid where the accredited/authorised branch of the paying bank is located.
* Drawee banks must rectify mistakes/discrepancies in payment scrolls/monthly DMS, submit missing images, and keep verified copies of scrolls.
* **Implementation and Parallel Run:**
* Revised guidelines are effective for cheques issued from July 1, 2019, applicable upon State Government consent.
* A parallel run (physical instruments and images) is possible for up to three months if desired by the State Government.
Impact Analysis
State Government Departments/Treasuries/Sub-Treasuries
Impact: Receive cheque information electronically instead of physical cheques, potentially streamlining reconciliation processes.
Action Required: Provide consent for the withdrawal of the P2F arrangement. Establish secure electronic communication channels for receiving cheque images. Determine if a parallel run is desired.
RBI Agency Banks (Presenting and Drawee)
Impact: Change in cheque processing procedures, including image-based clearing, physical cheque retention, image preservation, and fulfilling requests for physical cheques.
Action Required: Modify cheque processing systems for image-based clearing, ensure secure storage of physical cheques for 10 years, preserve cheque images electronically for 10 years, and establish procedures for providing physical cheques upon request.
Comptroller and Auditor General of India (CAG)
Impact: Involved in the decision to dispense with P2F, supporting enhanced efficiency in cheque clearing.
Action Required: Monitor the implementation of the revised guidelines and address any audit-related issues arising from the discontinuation of P2F.
National Payments Corporation of India (NPCI)
Impact: Provides the National Archival System for drawee banks to preserve cheque images.
Action Required: Ensure the National Archival System is robust and accessible for drawee banks to preserve cheque images for the required duration.
Key Entities Referenced
Reserve Bank of India: The central bank of India, responsible for regulating the banking system and managing the country's currency.
Cheque Truncation System: A cheque clearing system introduced by the Reserve Bank of India to facilitate the presentation and payment of cheques without their physical movement.
Office of the Comptroller Auditor General of India: The supreme audit institution of India, responsible for auditing the accounts of the Union and State governments.
State Government: The government of an individual state within India. Mentioned in the context of cheque payments and reconciliation processes.
Negotiable Instruments Act 1881: An act of the Parliament of India which codifies the law relating to promissory notes, bills of exchange, and cheques.
Bankers Books Evidence Act 1891: An act of the Parliament of India to amend the law of evidence with respect to bankers' books.
National Payments Corporation of India: An umbrella organisation for operating retail payments and settlement systems in India.
Mumbai, Maharashtra: A city in the state of Maharashtra, India, where the Central Office of the Department of Government Bank Accounts is located.
भारतीय �रज़वर् बक�
________________RESERVE BANK OF INDIA
__________________
www.rbi.org.in
RBI/2018-19/216
DGBA.GBD.No.3136/42.01.035/2018-2019 June 20, 2019
The Chairman and Managing Director/
The Chief Executive Officer
All Agency Banks
Madam / Dear Sir,
Discontinuation of the requirement of Paper to Follow (P2F) for State
Government Cheques
With a view to enhancing efficiency in cheque clearing, Reserve Bank has
introduced Cheque Truncation System (CTS) for clearance of cheques, facilitating
the presentation and payment of cheques without their physical movement. P2F has
been discontinued for CG cheques with effect from February 2016. Taking this
initiative forward, it has now been decided in consultation with the Office of the
Comptroller & Auditor General of India (C&AG), Government of India, to dispense
with the current requirement of forwarding the paid State Government cheques in
physical form (commonly known as P2F) to the State Government
departments/treasuries.
2. Accordingly, it has been decided to modify the “Memorandum of Instructions on
Accounting and Reconciliation – State Government transactions (February 2003)” as
under:
a) This circular may be treated as an addendum to the instructions and inserted
as para 5.16 of the Memorandum of Instructions titled “Procedure to be
followed by Agency Bank branches for discontinuing P2F for cheque based
payments of State Governments”.
सरकारी एवं ब�क लखे ा िवभाग, केन्�ीय कायार्लय, मुंबई स��ल रेल्वे स्टेशन के सामन,े भायखला, मुंबई 400 008
Department of Government & Bank Accounts, Central Office, Opp. Mumbai Central Railway Station, 4th Floor, Byculla, Mumbai 400 008
Telephone: (022) 2308 4121, Fax No. (022) 2300 0370/2301 6072/2301 0095, e-mail: cgmicdgbaco@rbi.org.in
िहन्दी आसान ह,ै इसका �योग बढ़ाइए ।2
b) In Cheque Truncation System, the ‘drawee bank’ means the dealing branch of
a bank accredited to a Ministry/ Department/Treasury/Sub-Treasury on which
the cheques are drawn. The ‘presenting bank’ means a branch of any bank
where the cheques are presented for payment by the clients. Both the
presenting banks and drawee banks would continue to discharge their duties
prescribed under various Acts/Regulations/Rules such as the Negotiable
Instruments Act 1881, Bankers’ Books Evidence Act 1891, Uniform
Regulations and Rules for Bankers’ Clearing Houses, Procedural Guidelines
for Cheque Truncation System etc. with respect to payment of cheques. The
government cheques would henceforth be paid in CTS clearing solely based
on their electronic images. The paid cheques in physical form would be
retained by the presenting bank.
c) In case any drawee bank desires to verify the government cheque in physical
form before passing it for payment, the image would be returned unpaid
under the reason “present with document”. The presenting bank on such
instances shall ensure that the instrument is presented again in the next
applicable clearing session without any reference to the account holder
(payee).
d) The presenting banks are required to preserve the physical instruments in
their custody securely for a period of 10 years as required under Procedural
Guidelines for CTS. In case some specific cheques are required for the
purpose of any investigation, enquiry, etc., under the law, they may be
preserved beyond 10 years. Drawee banks shall make necessary
arrangements to preserve the images of all government cheques for a period
of 10 years with themselves or through the National Archival System put in
place by National Payments Corporation of India (NPCI).
e) The government cheques paid by a drawee bank across its counter by way of
cash withdrawal or transfer also need to be truncated and preserved for 103
years. Adequate safeguards shall be built to ensure that these images are
captured separately by the drawee banks and not mixed up with the images
of the instruments received for payment in clearing. A common electronic file
containing the images of all the paid cheques shall be created on a daily
basis for onward transmission to State Government
Departments/Treasuries/Sub-Treasuries.
f) As prescribed in para 5.1 of the Memorandum of Instructions, the branch
handling the State Government transactions shall continue to send the
Payment Scrolls on a daily basis in the prescribed form to the Sub-
Treasury/Treasury to whom they are attached as hitherto. However, as the
paid cheques would no longer be available with the accredited branch, the
same will not be attached with the payment scroll, but the electronic images
of paid cheques (by way of cash, clearing and transfer), preserved by the
presenting bank, shall be provided to the Office of AG/State Government
Departments/Treasuries/Sub-Treasuries by way of secured electronic
communication/ e-mail, etc., as per their requirement.
g) At any time during the preservation period of cheques, for the purpose of
reconciliation, enquiry, investigation, etc., the Office of AG/State Government
Departments/Treasuries/Sub-Treasuries may require any paid cheque in
physical form for which the concerned State Government
Department/Treasury/Sub-Treasury would approach the dealing branch.
Whenever so demanded, the dealing branch shall arrange to furnish the
cheques paid by it by way of cash and transfer immediately. In case of
cheques paid by way of clearing, the same shall be supplied to the Office of
AG/State Government Departments/Treasuries/Sub-Treasuries within a
reasonable period after obtaining it from the presenting bank. It is the
responsibility of the presenting bank in such instances to comply with the
request of the Office of AG/State Government Departments/Treasuries/Sub-
Treasuries / drawee bank for any physical cheque and provide the same to
the respective drawee bank within a reasonable period.4
h) At present, the CTS is operated on grid basis. Hence, the government
cheques drawn on RBI / agency banks shall be presented in the grid within
whose jurisdiction the accredited/authorised branch of paying bank is located.
i) As hitherto, the drawee bank shall ensure through the dealing branch that the
mistakes/ discrepancies pointed out in payment scrolls, monthly DMS etc are
rectified as per procedure, missing images of paid cheques are submitted
immediately, the copies of the scrolls duly verified by the Sub-
Treasury/Treasury are kept on its record, etc.
3. The revised guidelines would be effective in respect of cheques issued by the
State Governments from July 01, 2019 and made applicable for those State
Governments which give their consent for withdrawal of P2F arrangement. As and
when State Governments give their consent, the same will be advised to the banks.
In case any SG desires to have a parallel run, the same may be done for a period
not exceeding three months. During the parallel run period, P2F shall continue to
remain operational and the drawee banks should forward both the physical
instruments and their images to concerned Treasury/Sub-treasury as desired by
them. After completion of the parallel run, P2F shall be discontinued and only images
shall be sent as outlined above.
Yours faithfully
(Charulatha S. Kar)
Chief General Manager