In a directive issued on Friday, the central bank has said individuals and firms that are provided with good-for-payment checks can ask banks and financial institutions issuing such checks to furnish evidence that shows amount equivalent to that mentioned on the check is frozen in the system.[break]
The regulator introduced this option for check holders after H&B started issuing good for payment instruments worth millions of rupees without locking the amount mentioned in the check in the system. Since the checks were issued against accounts that had no funds, the instruments that should have been as good as cash turned out to be no more than pieces of papers.
As many blamed weak internal control system of the bank for the fiasco, the central bank has laid the option of assigning at least two officers of the office that issues such checks to put their signature on the instrument, mentioning their name, code number and designation.
“The check should also have the office seal on it and the chief operations officer should be informed about issuance of such checks,” the directive says, while reminding all banks and financial institutions not to issue loans against good for payment checks.
However, these conditions do not apply on checks issued to the government, the directive adds.
The directive also says all banks and financial institutions must allot a risk weight of 100 percent to investments made on mutual funds while computing the capital adequacy ratio - a measure of capital reserves against assets at risk.
Also, seed money allocated by banks and financial institutions to set up mutual funds can be incorporated while calculating the core capital, the directive adds.
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