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FEDAI Rules-11, Inter Bank TT Settlement and Despatch.


Chapter 11- Inter-bank TT-Settlement of Inter-bank TTs and Despatch Preamble (Old RULE 5 reproduced)

In view of the importance of this Rule to toning up accounting accuracy and ‘nostro’ reconciliation systems in banks, Reserve Bank of India have, whilst giving approval to the amended version of FEDAI Rule 5 made the following observations:-

  1. Dealing in the interbank market is generally for large value items and it is in the interest of the banking system that claims are made promptly, if funds are not received in time, and settlements effected. International banking situation is presently not in good shape and every care must be taken by member banks to keep their monitoring system for execution of contracts and for watching receipts of countervalue funds in top gear. It is therefore absolutely necessary for banks to reconcile all dealing items and other large value items within a period of 24/48 hours by demanding cable/ telex confirmation regarding receipt of expected credits in ‘nostro’ accounts from the correspondents maintaining those accounts but in any event not later than a maximum period of 15 days. In this context you would observe from amendment proposed to Rule 5(III) (D) that FEDAI itself has recognized 5 calendar days as adequate period for identifying and settling interest claims. Banks should not lose sight of the credit risk aspects emphasized in para 3.1.3 of the Confidential booklet “Guidelines for Internal Control over Foreign Exchange Business”. The requisite monitoring system therefore applies for not only dealings with overseas banks but also to banks in India whose correspondent banking arrangements are varied.
  2. As regards Rule 5(III) (B) & (C) it is very necessary that discrepant/ default items should be quickly identified and effectively settled between member banks within a reasonable time. This is considered necessary also for toning up the reconciliation system in member banks. Notices of non-receipt of funds in the ‘nostro’ account must be followed up by cable or telex with their correspondents. Banks should not wait for receipt of statements of ‘nostro’ accounts for reconciliation of such items because in that event corrective action will take a much longer time. Reconciliation may be treated as a final cross check and not a primary investigation step.
  3. As opposed to virtually compulsory settlement of interest claims by the method of back valuation the buyer bank has been given the option of acceptance of back valued credits vide Rule 5 (III) (D).
  4. All kinds of defaults in the delivery of countervalue currencies in cross currency deals i.e. dealing in a foreign currency against another foreign currency between Authorised Dealers in India, fall within the ambit of the provisions of Rule 5, thus, making redundant a separate sub-rule for that purpose.
  5. As regards Rule 5 (VI) the emphasis shall be that bank is should make proper enquiries into their books before meeting interest claims thereby resulting in the toning up of general efficiency in banks.
  6. The attention of Authorised Dealers is invited in this connection to Reserve Bank of India Circular No. ECS 113/(Gen)-83/84 dated 25th July 1983 issued to the Chairmen/ Chief Executives of Authorised Dealers earlier.

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