Basics of Banking_ Reconciliations in bank branches & Inter Office Transactions

1. BASICSOFBANKING:RECONCILIATIONSIN BANK BRANCHES & INTER OFFICE TRANSACTIONS https://taxguru.in/rbi/basics-banking-reconciliations-bank-branches-inter-office-transactions.html ReconciliationinBanks:Theproblemaboutreconciliationatthebranchlevel,whichhasnotbeenresolvedby computerization,is that of suspenseand sundry deposit accounts. Suspense account balance is included under ’Other Assets’ in the balance sheet. If the accounts are maintained properlyandonatimelybasisanyentryinsuspenseaccountmaynotarise.But,particularlysuspenseaccountis oftenused to temporarily record certainitems like :- Accountstemporarilyrecordedunderthisheadtilltheprecisenaturethereofhasbeendeterminedor pendingtransfer thereof tothe appropriate head ofaccounts; Debitbalancearisingfrompaymentofinterestwarrants/dividendwarrantspendingreconciliationof amountsdepositedbya companyandthe paymentmadeby variousbrancheson thisaccount; Lossescausedduetofraudsandawaitingadjustment Aneglectofthecontroloversuspenseaccountcanmakeitaneasytargetforcommittingfraudsbypassingdebit entriesintheaccountandsiphoningofftheamount.Therefore,thereconciliationofoutstandingentriesbecomes important. Detailsof oldoutstandingentries insuspenseaccount, alongwithnarrations, areprepared periodically and decision on each entry is taken by the branch or Head Office, Each bank has its own policy towards provision/write off for old outstanding items. Outstanding Entries in ‘Sundry Deposits’ or ‘Sundries Account’ are also expected to be cleared expeditiously even though the entries (Unlike Suspense Account) may notbe fraud prone. Inter Office (or Branch) Adjustments (Net) :This item in balance sheet represents the difference on account ofincompleterecordingoftransactionsbetweenonebranchandanotherbranchorbetweenonebranchandhead office.Itmaybenoted thatonlynetposition istobeshownof interofficeaccounts,inland aswellasforeign. Origination/Response(Reversal)ofInterOfficeTransactions: Inmanytransactions,undertakenbythebranch,onelegofthetransactioninvolvedisinterofficeaccount.The majortype of transactions,which result inInter Office debitor credit entryare :- Issueofremittanceinstrumentslikedraftsonotherbranches Paymentofremittanceinstrumentslikedraftsbyotherbranches Paymentto/Receiptfromotherbranchesoftheproceedsofinstrumentsreceived/sentforcollection /realization/clearing.

2. TransactionsthroughNEFT,ECSandRTGS • ATMtransactionsofthecustomerseitheratATMlinkedwithotherbranchormerchantestablishment. • TransactionsthroughpaymentgatewayofATM,etc. • Payment of instruments like gift cheques/bankers’ cheque/interest warrant/dividend warrant/repurchase warrant/refundwarrant/travelerscheque,etcwhicharepaidbybranchonbehalfofotherbrancheswhich havereceived theamount forpaymentof theseinstruments fromcustomers concerned. • Operationsbyauthorizedbranchesonthebank’sNOSTROaccounts • ForeignExchangetransactionsenteredintothebranchforwhichithastodealwithnodalforex departmentofthe bankfor exchange ofrupees withforeign currency • Depositandwithdrawalofmoneybybranchesfromthecurrencychestmaintainedbyanotherbranch • Cashsent/receivedfromotherbranches • HeadOfficeinterestreceivableandpayablebybranches • Profit/losstransferredbythebranchtoheadofficeaccount • Governmentreceiptsandpaymentshandledbythebrancheitherasnodalbranchoragentofnodalbranch • Interestbasedtransactionsotherthaninteraccounttransferswithsamebranch • Creditcardrelatedtransactionsofthecustomers • NOSTROAccountsofIndianBranchesmaintainedwithoverseasbranchesofthebank • CapitalFundwithOverseasBranches • HeadOfficebalancewiththeoverseasbranchesincludingsubordinatedebtlenttotheoverseasbranches • Transactionsfromoverseasbranches • PaymentmadeunderLCsofotherbranches • For the bank as a whole, the transactions which remained unmatched/unreconsiled appears as inter office adjustmentsbalancein“Branch Adjustment Account”in the balancesheetof thebank– underthehead ‘Other Assets’if it isdebit and under ‘OtherLiabilities and Provisions’if in credit. • RBIGuidelinesregardingInterOfficeEntries: • Consideringthefraudpronenatureandthefactthattherearelargenumberoftransactionsininter-officeaccount and the non-reconciliation is widely extended across the banks, RBI has taken a number of measures to achieve an expeditious reconciliation of these transactions by the banks concerned. Non reconciliation result in a ‘fraud riskfactor’. • RBIhadinstructedthebankstoreconciletheentriesoutstandingintheirinterbranchaccountswithinaperiodof • sixmonths: • BankshavebeenadvisedbyRBItosegregatethecreditentriesoutstandingformorethan5yearin inter branch accounts and transfer them to a separate ‘Blocked Accounts’ which should be shown in the balancesheetunderthehead’OtherLiabilitiesandProvisions–Others’(Schedule5).Whilearrivingat the net amount of inter-branch transactions for inclusion in the balance sheet, the aggregate amount of Blocked Account should be excluded and only the amount representing the remaining credit entries should be netted against debit entries. Banks have been advised that any adjustment from Blocked Accounts should be permitted only with the authorization of two officials one of them should be from branch concerned. • RBIhasalsoadvisedthebankstomaintainheadwiseaccountsforvarioustypesoftransactionsput throughinter branchaccounts so thatnetting can bedone category wise.

3. There may be debits in ‘Inter- Branch Adjustment‘ which may not termed assets (Debits may be because of frauds etc.) Banks are required to arrive at the category wise position of un reconciled entries outstandingintheInterbranchadjustmentaccountformorethansixmonthsason31stMarchandmake provisionequivalentto 100%ofthe aggregatenetdebit underallcategories. Bankstoensure :- • ThecreditbalanceintheBlockedAccountcreatedisalsotakenintoaccount • Thenetdebitinonecategoryisnotsetoffagainstnetcreditinanothercategory(DBOD.No. BP.BC.73/21.04.018/2002-03dated February 26,2003) • ConsideringlargevolumeoftransactionsrelatingtodemanddraftsRBIhasadvisedthebanksto segregateinterbranch transactionsrelatingto DDfromother Interbranchtransactions. • RBI has advised banks to restrict originating debits to head office account to cash/funds transfer, purchaseofsecurities/capitalassets,withdrawalfromProvidentFund,AdvancestoInspectionandother staffmembers, etc.