RBI intends to curb a practice followed in many banks, particularly the public sector ones, where an intermediary account called ‘office account’ is misused for many purposes at the branch level.
The office account(s) are created by banks to park funds for a brief period before being credited to the intended account holder’s account. Typically, cheques when presented for clearing may get passed at the issuing bank’s end and the credit received. The branch however holds this amount for a day before making it available to the account holder for withdrawal /usage. This is a very old banking practice and followed by almost all banks.
RBI has noticed that some bank managers are playing around with these temporary funds to favour some customers. One of the practices found to be occurring is, the manager using his discretion to allow a temporary overdraft to customers. The customer may have an account where there is a loan default and the account could turn NPA if some payment does not come in. This temporary overdraft is used by the customer to pay into that account and avoid being categorised as NPA. The entries are later reversed when the funds are arranged by the customer. As per the existing arrangements, the customer and the manager have a month’s time to set right this default and square up the account.
These actions need not be included in any report and therefore go undetected at the level of the bank’s controlling offices and at RBI.
A more serious misuse of this office account found by RBI is the case of money laundering. If the customer and the manager are hand in glove, the customer is allowed to deposit large amounts of cash in the office accounts and later the amount is credited into the customer’s account by debiting the office account through internal transfer voucher where the cash transaction stands hidden.
Under normal circumstance, any bank branch will have to report abnormal cash deposits in their branches to the Financial Intelligence Unit (FIU). This setup will then have the customer’s case investigated to ensure that there is no case of money laundering involved. This is being circumvented by the above misuse of the office account by branch managers.
Now, RBI has told banks to put an immediate end to these practices. The banks will have to introduce internal audit systems to check the way the office accounts are used and send a detailed action taken report to the RBI.
To their defence, the bank managers say, these are accommodations they are forced to indulge in, to retain their customers in a competitive banking environment. Importantly, when the managers also come under the scanner when NPAs get reported, they resort to such tactics, it is said.