April 16,2004

Chaitra 27,1926 (S)

The Regional Directors / General Manager-in-Charge/
Reserve Bank of India
Public Accounts Department
Ahmedabad / Bangalore/ Bhubaneswar / Bhopal /Chennai /Chandigarh / Guwahati / Hyderabad / Jaipur / Kanpur /Kolkata / Nagpur / New Delhi / Belapur, Navi Mumbai /Fort, Mumbai / Patna / Thiruvananthapuram
The Chairman / Managing Director of all Agency Banks

Dear Sir,

The Reserve Bank of India has been issuing various instructions relating to Reserve Bank's role as Banker to State Government from time to time. In order to enable the banks to have all the currently operative instructions on the subject at one place, a Master Circular has been prepared which is enclosed.

2. Please acknowledge receipt of this Master Circular.

The Reserve Bank of India acts as a banker to the Central and State Governments in terms of the provisions of Sections 20,21 and 21 A of the Reserve Bank of India Act, 1934. The Reserve Bank carries out the general banking business of the governments through its own Offices and branches of public sector banks viz., State Bank of India, its associates and Nationalised Banks and four Private Sector Banks viz. ICICI Bank Ltd., HDFC Bank Ltd., IDBI Bank Ltd. and UTI Bank Ltd. The business of State Government is done by the RBI and Agency Banks by means of an agreement entered into between the State Governments , RBI and Agency Banks. DGBA has issued eleven circulars in connection with the conduct of State Government Business by the Agency Banks.

II. Powers to Regional Offices to permit accredited agency banks' branches to conduct State Government business

The proposals from State Governments for entrusting State Government cash business at the treasuries/sub-treasuries to agency bank branches, are considered by Central Office at present. With a view to bringing about better co-ordination between RBI Offices and State Governments, it has since been decided to delegate powers to the Regional Offices to permit accredited agency banks branches for the conduct of State Government cash business subject to certain conditions.

1. There should be a specific proposal from State Government to handover Treasury/sub-treasury cash business to the branch of a agency bank accredited to handle State Government business. Such proposals should be supported with information as per "Annexure"
2. The agency bank should be an accredited bank for conducting State Government business.
3. one treasury/sub-treasury – one bank branch principle should be followed while according permission.
4. The accredited bank should be willing to take over Cash business of the treasury/sub-treasury concerned . For this purpose, the matter may be taken up with the Government Accounts Department of the agency bank concerned.
5. This is applicable only to State Government business and the bank branches within the State jurisdiction and that too of public sector banks only.
6. List of authorized branches will be maintained by Regional Offices.

Where the bank proposed by the State Government is not already accredited to handle the cash business of the State Government concerned, such proposals should be referred to DGBA, CO, with full particulars. Subsequent authorization of branches of the bank once accredited may be done by Regional Office concerned. List of banks presently accredited to conduct State Government business (State-wise) is given in the Annexure.

(Ref.Circular No. 145 dated May 23, 2001 DGBA GAD.No. 1099 / 31.02.041 dated May 23, 2001)

Agency banks were also advised in the matter on the above lines.

(Ref. Circular No. 146 dated May 23, 2001 DGBA.GAD.No. 1100 / 31.02.041 / 2000-01 dated May 23, 2001)

With a view to assessing the level of customer satisfaction rendered by the Bank and its agencies in their role as banker to Governments in the light of all-round technological developments taking place at RBI, Agency banks and Government Departments and to make the working of the Departments concerned in the Bank more customer friendly with simplified practices and procedures, four Study Groups, one each at Bangalore, Chennai,

Hyderabad and Nagpur Offices comprising officials from the Bank, agency banks and various ministries/Government Departments were constituted. The Groups have since submitted their recommendations and the same have been accepted by Bank.

The action points and the time-frame for implementation of the recommendations are given below:

Further, in view of the enormous work of Government and complexities and inter linkages between the Governments and the banking system besides public interface, Offices have been advised to set up formal review mechanism in the form of a Standing Advisory Committee with the Regional Director as Chairman. Such a Committee should comprise representatives of Government Departments (Central and State ) and Agency Banks as members. The Committee should meet once a quarter on an ongoing basis to look into/identify problems (both procedural and system) concerning conduct of Government accounts and sort out issues. The Committee may also suggest to Central Office matters of all India importance as inputs for policy formulation in relation to conduct of Government business.

(Ref i) DGBA.GAD.No. 904 / 31.05.001 (C) 2001-02 dated April 23, 2002

Some of the Offices of the Bank have fixed a limit for acceptance of cash over the counter towards payment of taxes and other dues to Government. The matter has been reviewed in consultation with our Legal Department who have examined the issue in totality and opined that keeping in view the provision of Section 40 A (3 of the Income Tax-Act 1961 read with Rule 6 DD of the Income Tax Rules, 1962, limiting acceptance of cash tendered over the counter together with the challans for credit to the Government account would run counter to the Statutory provisions, which requires cash tendered by members of Public to be accepted by Reserve Bank without any cap.

(Ref.DGBA.GAD.No.H-761/31.05.001/2003-04 dated February 16, 2004)

As per provisions contained in para 8.2 of PAD Manual, the Date-wise Monthly Statement(DMS) should be submitted to the Treasury/Sub-Treasury in all cases on the first working day of the following month. The latter will scrutinize the DMS and one copy thereof is required to be returned expeditiously within a period of 3 days from the date of its receipt to the branch of agency bank with a certificate to the effect that it has been checked and found to be correct.

Since RBI is acting as banker to the Government Departments, it has been decided to incorporate the following legend for obtaining confirmation of balances from Government Departments in the said statement at the end of the statement.

"The balance in your account as on …………as shown in the statement may please be confirmed by returning the enclosed DMS to us duly filled in and signed by the authorized officials. If the certificate is not returned within one month from the date of this statement, it will be presumed that the balance shown therein has been confirmed and no further correspondence will be entertained thereafter ".

(Ref.DGBA.GAD.No.H-762/31.04.001/2003-04 dated February 17, 2004)

VII. Settlement of March transactions with Central Accounts Section(CAS), Nagpur – Financial Year 2003-04

The Government transactions relating to each Financial Year are required to be accounted for in the same Financial Year to the extent possible. Procedure to be followed for settlement of March-end transactions are issued to all Agency banks and RBI Offices in the month of February each year.

(Ref. i) DGBA.GAD.No. 998/ 31.04.001 / 2003-04 dated February 18, 2004

ii)DGBA.GAD.No. 772 / 31.04.001 / 2003-04 dated February 27, 2004.)

VIII. Accounting and Reconciliation of State Government Transactions

In the light of discussions in the Conference of State Finance Secretaries held in May, 2001, a high level Committee under the Chairmanship of Shri A.K. Sohani, Regional Director, Reserve Bank of India, was constituted to examine, review and suggest changes in the existing accounting and reporting mechanisms for State Government transactions with Reserve Bank and its Agency banks, and to suggest methodology for reconciliation of pending discrepancies in accounts with an acceptable system of confirmation of balances. Members of the Working Group were drawn from the Office of Comptroller and Auditor General of India, Office of the Controller General of Accounts, Finance Departments of a few State Governments and Accountants General Offices besides officials from Reserve Bank of India and State Bank of India.

The Report of the Working Group was placed before the 10th Conference of Finance Secretaries held on June 7, 2002 and was adopted for implementation. The Working Group is of the view that the system and procedure outlined in the existing "Scheme of Partial Decentralisation" introduced in 1987 are broadly adequate to meet the accounting and reporting requirements and that the present problems have arisen mostly due to inadequacies and lags in the implementation of the Scheme by the parties involved. some of the major recommendations of the Working Group are briefly recapitulated below :

1. It was observed that the use of Pass-Book System was not being followed at present. The Group appreciated the utility of Pass-Book System and recommended that the Agency Bank branch to maintain two sets of Pass-Book in the revised format (which includes certificate of confirmation by Treasury / Sub-Treasury Officers) for alternate day use, so that one full day is available to Treasury / Sub-Treasury for verification. Certificate regarding correctness of the transactions after verification of each item of receipt and payment recorded in scrolls is to be given in the Pass-Book itself.
2. In view of persistent delay in remittance of collection to the government account, a deterrent provision for payment of interest at two percentage points above the Bank Rate may be charged on delayed receipts of Rs. 10 lakhs and above, if the period of delay exceeds the prescribed time (at present the prescribed time is 10 days for normal branches and 15 days for the branches situated in far flung areas) for crediting such transactions. The prescription in regard to period is to be reviewed after one year in the light of the procedural improvement and impact of computerisation at bank branch level.
3. In future, the Accountant General may give confirmation to the Central Accounts Section (CAS), Nagpur on item-wise Cash Balance during the month within fifteen days of the reporting of the balances by the CAS. Apart from the monthly reconciliation, there should be a system of confirmation of Annual Cash balance of State within two months from date of receipt of figures.
4. All Agency bank branches handling Government business on one side and Treasuries on the other should move towards centralized maintenance of accounts and processing. Accounting when centralized, reduces cost of operations, ensures availability of up-to-date information and improves management, paving the way for uniformity in standards. The concerned functionaries should gradually move towards the centralized system of maintenance of accounts and processing.
5. Efforts should be made to switch over progressively to the cheque payment system, replacing the bill payments system existing in some States. This will minimize the movement of bulky documents and also facilitate easy capture of data.
6. It would be desirable, to have an electronic link between the Accountants General offices and Public Accounts Departments of Reserve Bank of India on the one hand and Accountant General Offices and the CAS on the other, for better and speedy cp-ordination. All the parties should make efforts to share their data electronically, duly ensuring transparency, correctness and security of data.

RBI has authorised four private sector banks viz. ICICI Bank Ltd., UTI Bank Ltd., IDBI Bank Ltd. and HDFC Bank Ltd. for conduct of Government Business including State Government Business such as revenue collections, pension payments, expenditure related functions in respect of all Central Government Ministries/Departments. The authorization is subject to banks continuing to maintain certain critical financial parameters on an on-going basis. The effective date for commencement of collection of direct taxes and pension disbursement work for Government of India is October 1, 2003.

Further, these four banks are required to remit their Government collections to CAS, Nagpur within 3 days (inclusive of holidays) of realization of cheques etc. The collection of the banks is governed by the instructions contained in the "Memorandum of Instructions - Accounting and Reconciliation - State Government Transactions" issued by Reserve Bank of India under cover of its Circular DGBA.GAD.No. 1377 / 31.04.008 / 2002-03 dated February 22, 2003, and procedures laid down by Accountant General. All State Governments have been advised that if they so desire they can choose any or all the Four Banks for conduct of the State Government's business including disbursement of pension.

(Ref.DGBA.GAD.No. 229 / 42.01.001 / 2003-04 dated August 29, 2003)

In case any clarification is required, a reference may be made to the original circular.