‘Regulating’ DD

RBI directive creates something out of nothing

Sajad Bazaz
Srinagar, Publish Date: Jul 17 2018 11:42PM | Updated Date: Jul 17 2018 11:42PM
‘Regulating’ DD

Money laundering, precisely called illegal flow of money mostly through official channels like banking system, continues to haunt the central bank - the Reserve Bank of India (RBI). Despite series of ‘effective’ measures in the past to curb it, new loopholes in the banking system continue to pave way for the illegal flow of money from place to place and from individual to individual. 

Reportedly, in the last financial year, over 5,000 cases of fraud involving over Rs 28,459 crore were reported in the banking system in the country. The fraudsters were found misusing banking instruments such as demand draft etc. to transfer funds ‘clandestinely’. 

Last week, in an attempt to bring down and curb the fraudulent flow of money in the banking system, the RBI issued a new directive to banks to mention the name of the purchaser on the face of a demand draft (DD). Similar instructions have been declared mandatory for Pay Order and Bankers Cheque, which will be implemented from September 15.  

Demand draft is one of the oldest banking instruments and is  as familiar as cheques. It is a prepaid instrument drawn on in the name of the bank by an individual who wishes to make a transfer payment from one bank account to another. In fact, this is the instrument which has been and continues to be usually preferred over cheques in a financial transaction as its payment can’t be denied. While as, a cheque can be returned unpaid  due to insufficient funds.

The RBI directive though hit headlines across sections of media, the substance in the directive seemed lacking punch. Demand Draft is one such bank instrument which is fast losing dependability owing to modern modes of quick and safe funds transfer facilities such as national electronic fund transfer (NEFT) and real time gross settlement (RTGS).

This instrument is even losing its utility fast for many applications for jobs and admission into educational institutions. Now organizations and institutions prefer online submission of application/ admission fees. Notably, charges for transfer of funds through digital modes like NEFT and RTGS are negligible when compared to the DD charges, particularly in case of high-value transactions. This is also one of the reasons that bank customers prefer digital mode of funds transfer.

NEFT is cheap, facilitating one-to-one funds transfer. There is no limit on the minimum or maximum amount of funds that could be transferred using NEFT, except in some cases. The RTGS system is primarily meant for large value transactions beginning from Rs 2 lakh,. There is no upper ceiling for RTGS transactions. The beneficiary is expected to receive the funds in real time as soon as funds are transferred by the remitting bank.

Meanwhile, the RBI rules are already in place which envisage that the demand draft can only be issued by debiting a customer's account. It cannot be done across the counter. If a person is coming with cash on counter and asking for any demand issuance, the demand draft cannot be issued. It has to be issued from the customer accounts only. This means any fraud committed by misusing the demand drafts can be detected subject to the vigilant bank staff, particularly those who are primarily involved in facilitating the execution of the transaction through demand draft. The existing guidelines with regard to DDs are enough to detect a fraudulent or illegal flow of money. It doesn’t require a rocket science to detect any misuse of demand drafts.

To be precise, the apex bank rules  state that any remittance of funds by way of demand draft, NEFT, RTGS or any other mode for value of Rs 50,000 and above shall be effected by debit to the customer’s account or against cheques, not against cash payment.

So, at a time when transactions are electronically done anytime and anywhere in a jiffy, penning down the details in the instrument such as name of the beneficiary, amount etc  makes it cumbersome for the bank customer. Any mistake in the details will not only wastage of time but will also burden the customer with additional charges because even the cancellation of a demand draft has to be paid and is nowadays a costlier affair. Precisely, in the current times when attention of a customer is scattered in the world of technology, making a DD demands extraordinary attention to avoid entry of incorrect details in the instrument. Then there is possibility of misplacing the instrument, which again makes it cumbersome as the banks are supposed to circulate the loss of instrument to the entire branch network so that fraudulent transaction through the misplaced or lost DD is stopped. 

To conclude, RBI directive to ‘bring transparency in demand drafts is nothing but to create something out of nothing.

(The views are of the author and not that of the institution he works for)


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