Banks still make DDs in exchange of cash, against RBI rules

Category: Global Economy Sub-category: Indian Economy
Document type: news

11-August-2011 | 15:20 IST | Edited by: Suman Chatterjee

Money LaunderingAfter two decades of Reserve Bank of India (RBI) passing a strict directive to banks not to accept DDs of Rs. 50, 000 or more in exchange of cash, it is found that many banks and financial institutions still allow the process.

In April 19, 1991, a mandatory rule was passed that no bank should accept DDs, mail transfers or traveler checks of Rs. 50,000 or above in exchange of cash. But this rule has been flouted many times since. "It has been has noted that certain banks have issued DDs for .Rs50, 000 and higher amounts against cash," says RBI in a recent communication.

The notification adds, "In the current scenario, where the integrity of the financial system in general and the banking channel in particular is of paramount importance, breach of these guidelines is a matter of serious concern." This pertains to the fact that this sort of money transfers in exchange of cash can be used for money laundering purposes to clean 'dirty income'. According to the RBI rule, the DD can only be made through a valid bank account, either check or direct money transfer.

 It has been surveyed that most of the violation is being done in the cooperative banks. Sources claim that smaller cooperative banks are one of the best ways for money laundering reasons. In fact, a cooperative bank was raided by the income tax department

There are some who believe that this is not a suitable and convenient rule. Especially in the rural or urban places, access to banks and other financial institutions can be limited. In that case, sending money through DDs in exchange of cash is the only option open for the money sender. In this case, it is illegal to even deny the use of legal cash for a legitimate process.

The issue stands in the middle ground as of yet.

External Links

Reserve Bank of India (RBI) - Official website

Income Tax Department of India - Official website

Ministry of Finance, India - Official website