Account payee cheque must to pay organisations

The central bank today asked banks and financial institutions to not accept bearer cheques issued to any organisation or firm for payments of over Rs 5 million from November 15.

The registered organisations and firms must issue account payee cheques of over Rs 5 million, said the central bank extending the deadline from its earlier plan.

Though, the central bank had asked the banks and financial institutions not to

honour bearer cheques meant for payments to any firm or organisation from the beginning of the current fiscal year, it has been postponed due to practical difficulties.
Since the country has supported the global fight against the flow of dirty money, the new provision will help make the huge transaction more transparent, the central bank said, adding that account payee cheque that refers to a cheque that directs the bank to deposit the amount specified in the cheque in the bank account of the person to whom the cheque is issued will make the transaction more transparent.

Now the banks and financial institutions have the right to reject the cheques that do not follow electric clearing standards from November 16. They will even not accept any cheque that is partially torn or has ink blots, the central bank’s circular today added.

Merchant banking subsidiaries

Likewise, the central bank has also paved the way for financial institutions to acquire merchant banking subsidiaries. Earlier, the regulations only addressed the establishment of merchant banking subsidiaries, and the new directives will pave the way for acquiring stakes in those companies.
Financial institutions can buy a stake in merchant banking subsidiaries after getting approval from the central bank.
However, merchant banking arms of financial institutions are not allowed to conduct any share transaction of the company itself and of the parent financial institution in the capital market.

New rule for problematic financial institutions
The central bank has also spared the problematic declared financial institutions from having to face the penalties for being unable to maintain regulatory Cash Reserve Ratio (CRR) and Statutory Liquidity Requirement (SLR). Once a financial institution is declared crisis-ridden, it is not allowed to accept any new deposits and float loans but depositors can withdraw deposits from those institutions. Currently, there are eight such problematic financial institutions.
The central bank has also forbidden close relatives of promoters or directors of financial institutions, who are employed in the same institution, to hold position at the company’s employee union. It will also be applicable to employees who hold less than one per cent of promoter shares of the financial institution.