Financial Daily from THE HINDU group of publications
Friday, Jun 04, 2004
Financial Daily from THE HINDU group of publications Friday, Jun 04, 2004 |
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Money & Banking
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RBI & Other Central Banks IBA alert on misuse of cheque book facility L.N. Revathy
Coimbatore , June 3 THE Indian Banks' Association has advised banks to exercise due care and vigilance whenever bulk or frequent demand for cheque books are received from customers, to avert possible misuse of the cheque book facility. The IBA's caution has come in the wake of the Reserve Bank of India taking up the issue, when it was brought to the apex bank's notice that corporate customers were floating collective investment schemes (CIS) and issuing post-dated cheque for long periods, thus inducing customers to invest in such schemes. Incidentally, the Securities and Exchange Board of India (SEBI) has also brought out a reference guide for investors, which, inter alia cautions investors from being misled by guarantees of repayment of the investment through post-dated cheques. Despite the forewarning, the investors fall a prey to such schemes because they believe that post-dated cheques which bear a bank's name is assurance enough, for repayment of the amount. The RBI contended that there was every possibility of the account holder company deciding to patronise some other bank soon after getting the required number of cheque books or not maintaining adequate balance over a long period to meet the liability arising in respect of such cheques. Stating that the banks would have to face a sticky situation in such an eventuality, the RBI has forewarned banks to take due care and ensure that any unusually large demand from any account holder for cheque books is looked into carefully to make sure that cheque leaves are needed for genuine short-term business requirement. "Banking facilities should not be allowed to be misused by any constituent for mobilising resources by giving people a false sense of assurance through issue of such long duration post-dated cheques," a note from RBI said.
More Stories on : RBI & Other Central Banks | Investor Protection
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