DBOD.No. BP.BC.24/21.01.023/98
March 30, 1998
Chaitra 9, 1920 (Saka)
All Commercial Banks
(excluding Regional Rural
Bank)
Dear Sir,
Frauds in banks/grant of 'at
par' facility for dividend/interest warrants and refund orders
Please refer to our Circular
DBOD. No. BP. BC. 109/21.01.023/97 dated September 30, 1997, in terms of
which, the entire scheme of extending 'at par' facility has been left to the
discretion of the banks. Banks have been advised to put in place adequate
internal control mechanism to safeguard their interests while determining the
policy regarding 'at par' facility with the approval of their respective
Boards.
2. Although, banks were
required to take necessary care before extending such facility to their
corporate clients, including
pre-funding of the account, it has come to our notice that instruments issued
by some of the companies were returned due to inadequate funding arrangements
eroding the investors' confidence in these companies leading to public
furore. In this connection, reference is invited to para 3(c) of Circular
DoS. No. BC. 8/23.08.03/96-97 dated May 27, 1997, according to which the
banks must ensure pre-funding of account by the party at all times and the
position is to be reviewed by the controlling branch. Banks are, therefore,
again advised to ensure that the pre-funding arrangements to meet the
payments on the instruments are suitably tied up before the grant of 'at par'
facility to a client so that the dividend/interest warrants are not
dishonoured due to lack of funds, when presented for payment. Chronic cases
of defaults on the part of companies in meeting their liabilities on the
dividend/interest warrants etc. may be communicated to the Registrar of
Companies or the Ministry of Finance (Department of Company Affairs), to
enable them to take action against such companies under the Companies Act,
1956.
Yours faithfully,
(C.R. Muralidharan)
General Manager