Atul Nanda & Anr. Complainants

Reserve Bank of India & Ors. Respondents

I, R.C.P. Singh, S/o. Late Shri Moti Prasad Singh, aged about 59 years, R/o. G-46, RBI Officers' Flats, Vasant Vihar, Poorvi Marg, New Delhi do hereby solemnly affirm and state on oath as under .

I am working as Deputy General Manager in the Department of Banking Supervision of Respondent No. 1 ('the Bank'). I am competent to file affidavit on behalf of the Bank and conversant with the case and also the facts relating to the matter. I respectfully submit as under:

1. In response to the show cause notice issued by this Hon'ble Commission, the Bank on November 09, 2006 has filed a reply affidavit, in which the bank has put forth its submissions, the same of which the Bank craves leave to refer to during the course of arguments in support of the present affidavit.

2. This Hon'ble Commission on November 09, 2006 after perusing the affidavit filed by the Bank and after hearing submissions put forth by counsel for the parties directed the Bank to state on affidavit as to what steps can be taken for minimising the loss to the consumers because of the floating fund. This Hon'ble Commission further directed the Reserve Bank of India to state on affidavit whether the guidelines issued by it are properly implemented by the banks by framing reasonable policies in conformity with the guidelines.

3. At the outset, I most respectfully submit that the complaint is based on imaginary and assumed figures. I submit that the allegation of float and interest derived to the extent of Rs. 621 crores is far from being correct and grossly exaggerated and wrongly assumed. It is further submitted that the figures given in Das and Das report are not the Bank's figures, but reflect the personal study carried out by them, which the Bank does not admit.

4. In so far as the cheque clearing process and steps initiated by the Reserve Bank of India to reduce the element of float are concerned, the answering Respondents respectfully submit as under :

4.1 The cheque clearing process involves

Thus a cheque would have to physically travel from the collecting bank to the paying bank for its presentment to the drawee bank and information as to whether the cheque has been passed for payment or not would have to travel back to the presenting bank by way of a negative list of returns. It is only after the expiry of return schedule that the beneficiary (payee) can utilise the funds.

4.3 As per the feedback received from various clearing houses, time taken for clearing of local cheques is 3 days (including the day of presentment of the cheque). In some instances, where the branches are covered in clearing houses such as New Delhi or Greater Mumbai, but are physically located at far-off places, this process of local clearing takes one extra day. For outstation cheques, it takes 5 days to 10 days on an average. Average time taken is a little longer for locations in North-Eastern states and Jammu & Kashmir.

4.4 For collection of the proceeds of the cheque presented at the collecting bank, the cheque has to be presented to the drawee bank. The presentment of the cheque can be done through clearing or by directly presenting over the counter of the drawee bank. If the collecting bank and the drawee bank are at different locations, there is bound to be some delay in collecting the proceeds of the cheque depending upon the distance between the collecting bank and the drawee bank. For this mechanism of clearing houses has been established. The cheques presented through Clearing Houses are received through return clearing if, the drawee bank does not clear the cheque. Only, on receipt of the return clearing, the payee is entitled to draw the amount of the cheque from its account at the collecting bank. It is respectfully submitted that the Bank had been taking sufficient necessary steps from time to time for reducing the time taken for crediting the payee's account by the amount of the cheque after its presentation in the Clearing House.

5. Within the local clearing segment – there are two sub segments – High Value Clearing and Main Clearing. For local cheques processed under 'High Value Clearing' which accounts for almost 50 percent of the value of the cheques, the scope for 'float' is nil – because the cheque is cleared by the end of the day and customer's account gets credited on the same day on which the cheque is presented. In the Main Clearing segment also, the scope for float is very remote.

6. On a rough estimate, not more than 0.5% of the volume and 2% of the value of the cheques are outstation cheques. From the above data, it is respectfully submitted that the value of cheques where there is some scope for delay in credit occurring is minimal. I further submit that the term 'float' as it is understood in the banking usage, refers to the benefit derived by a bank by realization of the proceed but not passing on that benefit to the payee.

7. For speedier collection of cheques and to eliminate any scope for the delay in collection of local cheques, the Bank has taken the following steps from time to time.

The Reserve Bank of India introduced MICR clearing during the late 1980s. At present there are 59 MICR Centres which account for 84 percent of volume of cheques. On account of the increased volume of cheques at several centres, the banks were finding it increasingly difficult to physically sort and list the cheques branch-wise. The introduction of MICR technology by the Bank, brought with it the encoding of cheques and the mechanical sorting and listing of the cheques, thus making it possible to process growing number of cheques and minimising the delay.

The Reserve Bank of India introduced Intercity Clearing, initially between the four metros and at present the two-way inter-city clearing is operational between 10 centres and one-way clearing is operational between 5 centres.

The Reserve Bank of India also took steps to computerise the operations of other clearing houses using magnetic media systems and at present the operations of 87 clearing houses are being managed through this mechanism.

Of late, the Reserve Bank has also introduced other electronic payment systems like Electronic Funds Transfer (EFT), Electronic Clearing Services (ECS) and Real Time Gross Settlement (RTGS) System, which replaces the existing paper mandates (cheques) with electronic mandates. The customer thus has a choice either to issue cheques or make use of electronic transfer systems. The advantage of these electronic mandates is that no physical transmission of the instrument is necessary, which causes the delay. Thus funds transmitted are available to the customer much faster using these products. There are multiple settlement cycles for the EFT systems in one day. In the RTGS system, the funds are available to the customer within two hours of its receipt at the beneficiary's bank.

The Reserve Bank has also been taking steps for further enhancing the efficiency of the cheque collection process. It had constituted a Working Group on Cheque Truncation headed by the Bank's Executive Director, Dr. R.B. Barman (copy marked as ANNEXURE R-1/III) which had recommended a model for cheque truncation in the country. The process of truncation would eliminate the necessity of physical movement of cheques for its presentment and payment, i.e., replacing the movement of paper with electronic movement of image of the cheques. The legal framework has already been created with the suitable amendments carried out to the Negotiable Instruments Act, 1881, the Information Technology Act, 2000 and the Bankers' Book of Evidence Act 1891 carried out in 2002. The project is in the implementation stage and is expected to be completed by the early part of 2007. This mechanism would also ensure that the issues involved in the physical movement of cheques are overcome for the Inter City clearing.

With the greater use of the aforesaid mode of electronic transfers (EFT, ECS, RTGS), the use of physical instruments would come down and the movement of the cheques that would remain in the system shall be eliminated due to cheque truncation.

During the year 2004, the Reserve Bank issued a circular dated November 1, 2004, copy enclosed with the Affidavit dated November 9, 2006, as per which banks were directed to formulate a comprehensive and transparent policy covering (i) time-frame for collection of outstation cheques (ii) policy for immediate credit of cheques and (iii) compensating the customers for any delay in such collections taking into account their technological capabilities, systems and processes adopted for clearing arrangements and other internal arrangements for collection through correspondents. The policy framed in this regard was to be integrated with the deposit policy formulated by banks in line with the Indian Banks' Association's (IBA) model deposit policy. The policy had to clearly lay down the liability of the banks by way of interest payments due to delays for non-compliance with the standards set by themselves and to be paid to the customers without any claim from the customers. Banks were also directed to give wide publicity in this regard.

8. With respect to the proper implementation of the guidelines issued by the Reserve Bank, by the banks in framing their cheque collection policies, the Reserve Bank makes the following submissions.

(a) As averred in the Reserve Bank's affidavit dated November 9, 2006, banks have been advised to get their respective policies framed by them individually and separately keeping in view the guidelines of the Reserve Bank of India, to be approved by their respective boards and to give wider publicity to it by displaying it at their branches, publishing the same on their websites, etc.

(b) The Reserve Bank has been pursuing the matter with all banks in various meetings for compliance of its circular dated November 1, 2004 for formulating policies by banks on cheque collection and giving it wide publicity. Of late, a meeting of the select banks was convened on September 15, 2006 for gathering feedback in this regard. The feedback received therefrom is being scrutinised and assessed by the Reserve Bank of India so that the objectives as articulated in the circular dated November 1, 2004 are fully met with. The Reserve Bank has been and is following with various banks to ensure that the cheque collection policies are being implemented in the spirit of the above guidelines.

DEPONENT

Verified at New Delhi on this 5th day of December 2006 that the contents of my above affidavit are true and correct to my knowledge and belief. No part of it is false and nothing material is concealed therefrom.

DEPONENT