Mumbai: The Reserve Bank of India (RBI) has issued a circular to all cooperative banks instructing them that they should not issue demand drafts, bankers cheques or pay-orders against instruments presented for clearing, unless their proceeds are collected in full and credited to the account of the parties concerned.
The RBI has also advised cooperative banks that demand drafts, bankers cheques or pay-orders should not be issued by debit to cash credit or overdraft accounts, which are already overdrawn beyond the limit sanctioned or are likely to be overdrawn with the issue of such instruments as applied for by the parties.
This step appears to be taken following the Mahavpura Mercantile Cooperative Bank (MMCB) episode. MMCB had issued pay-orders on behalf of Ketan Parekh companies without adequate balance in the companies accounts.
Following the MMCB scandal, the RBI has considered restraints on discounting of demand drafts and pay-orders issued by cooperative banks. Nevertheless, under the new scheme of working, this restraint need not be imposed.