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Master Circular on Conduct of Government Business by Agency Banks

Ashish M. Shaji

| Updated: Aug 29, 2020 | Category: RBI Regulations

Master Circular

The Reserve Bank of India issued a master circular on the conduct of government business by agency banks- payment of agency commission on 1st July 2020.  In this article, we specify some of the essential points made in the master circular by the RBI.

Government transactions eligible for agency commission as per the Master Circular

As per the master circular transactions relating to the following government business undertaken by the agency banks are eligible for agency commission paid by RBI:

  • Revenue receipts and payments on behalf of Central/State Governments;
  • Pension payments in respect of the Central/State Governments; and
  • And any other item of work advised by RBI as eligible for agency commission.

Government transactions not eligible for agency commission as per the Master Circular

As per the master circular the following activities do not come under the purview of agency bank business and are therefore not eligible for payment of agency commission:

  • Furnishing of bank guarantees/ security deposit etc. through agency banks by government contractors/suppliers, which constitute banking transactions undertaken by banks for their customers.
  • The banking business of autonomous/statutory bodies/ Municipalities/ companies/corporations/ Local Bodies etc.
  • Payments that have been classified as capital in nature by the government to cover losses incurred by autonomous/ statutory bodies/ Municipalities/ Corporations/ Local Bodies etc.
  • Prefunded schemes that can be implemented by a Central Government Ministry/ Department and a State Government Department through any bank.
  • Transactions related to Gold Monetization Scheme 2015.
  • Transactions from letters of credit/ Bank guarantee opened by banks on behalf of Ministries/Dept. etc. won’t qualify for agency commission as the Reserve Bank reimburses only the paid amount to the banks based on the mandate received from governments.
  • Any other item of work advised specifically by RBI or Central or State Government as ineligible for agency commission.

Reporting of transactions by agency banks to the RBI

Agency banks that are authorized to collect GST are required to upload their luggage files in RBI’s QPX/E-Kuber on all days except on holidays. The state government transactions of the previous month reported after 8th of the succeeding month and those pertaining to earlier months must be reported to the Reserve Bank through a separate statement for accounting, after being confirmed by the competent authorities of concerned state governments.

For central government transactions or any adjustments thereof, if reported after a gap of ninety days from the date of transaction, agency banks require obtaining prior approval from concerned ministry/ department and submit the same separately to RBI at the time of reporting such transactions for settlement.

Rates for agency commission

According to the agency bank agreement, the Reserve Bank pays agency commission at rates determined by it.

The rates are mentioned below:

  1. The rate for offline transactions shall be 40 rupees per transaction; and
  2. The rate for online transactions shall be 9 rupees per transaction.

The online transactions refer to those transactions involving remittance of funds from the bank account of the remitter through internet banking and such transactions that do not involve the physical receipt of cash/instruments at all like challan generated electronically and submitted to agency bank along with cash /instrument must be treated as a transaction under physical mode.    

Claiming agency commission

All agency banks are required to submit their claims for agency commission in the prescribed format to CAS (Central Accounts Section) Nagpur.  However, agency commission claims with respect to the GST receipt transactions shall be settled at Mumbai Regional Office of RBI, and all agency banks authorized to collect GST are required to submit their agency commission claims pertaining to GST receipt transactions at Mumbai Regional office.

In case if the external auditor is also the concurrent auditor/ statutory auditor, claims can be certified by them. Moreover, agency banks are required to ensure that the agency banks’ internal inspectors/ auditors verify the agency commission claims submitted by their branches.

In case of eligible government transactions done from 1st July 2019, agency banks are required to submit the agency commission claims, including the GST amount applicable as per revised agency commission rates indicated above to RBI at respective ROs/CAS, Nagpur as per the extant instructions issued by the Reserve Bank of India[1]. TDS on GST will be deducted as applicable by RBI at the time of making agency commission payment as per government instructions.

In case of eligible government transactions done by agency banks till June 30, 2019, agency banks will continue to submit agency commission claims and the centralized claims for ST/GST reimbursement as hitherto.

Agency banks must ensure that agency commission claims submitted to the Regional Office of RBI / Central Accounts Section, Nagpur as applicable in the prescribed format are accurate. Agency banks can also alert their concerned branches to ensure that agency commission claims submitted to RBI regional offices are accurate. If Such erroneous claims are certified by the Internal/ Concurrent auditors, it shall defeat the purpose of making such a requirement an essential condition for making quarterly claims.

Agency banks have been advised by the RBI to furnish their claim on agency commission to RBI within 60 days from the end of the quarter in which the transactions have been conducted. In the case where the banks fail to lodge the claims within the prescribed time period, they may forward the same to only RBI after providing the reasons for the delay.

Penalty in case of wrong claims

According to the agreement that agency banks have with the RBI, violation or non-compliance of instructions issued by the government or the RBI shall attract the imposition of penalty. In case of breach of agreement or violation, the agency banks will submit the interest; rate prescribed by the banks and further shall have an additional interest rate of 2 % applicable.

Conclusion: Master Circular

The Reserve Bank of India carries the general banking business of the Central government and state government through its own offices and through the offices of the agency banks appointed under section 45 of the RBI Act 1934 by mutual agreement. The Reserve Bank of India pays agency commission to the agency banks for the government business handled by them.

Read our article:RBI Issues Master Circular on Lead Bank Scheme


Ashish M. Shaji

Ashish M. Shaji has done his graduation in law (BA. LLB) from CCS University. He has keen interests in doing extensive research and writing on legal subjects especially on corporate law. He is a creative thinker and has a great interest in exploring legal subjects.

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