RBI Circular – Payment of Agency Commission

Master Circular on Conduct of Government Business by Agency Banks – Payment of Agency Commission

The Reserve Bank of India (RBI) recently issued an updated Master Circular consolidating important instructions on the conduct of government business by agency banks and the payment of agency commission. This revision, effective from April 1, 2023, encompasses instructions issued by the RBI up to March 31, 2024. The full circular is available on the RBI’s website.

The RBI, under Section 45 of the RBI Act, 1934, carries out the general banking business of the Central and State Governments through its offices and appointed agency banks. These banks receive agency commission for handling government business. The updated Master Circular consolidates instructions from previous circulars.

Government Transactions Eligible for Agency Commission

Agency banks earn commission for the following types of transactions on behalf of the government:

1. Revenue receipts and payments.
2. Pension payments.
3. Other specific tasks designated by the RBI.

Additionally, agency banks handle Small Savings Schemes (SSS) for which the Government of India bears the commission. These transactions are settled at the Central Accounts Section (CAS) in Nagpur, though the commission rates are decided by the government. Commission claims on Special Deposit Scheme (SDS) transactions are also settled at CAS, Nagpur.

Short-term and long-term borrowings of State Governments from financial institutions and banks are not eligible for agency commission, as these are not considered general banking business. However, separate remuneration is provided for public debt management.

Government Transactions Not Eligible for Agency Commission

Certain transactions are ineligible for agency commission:

1. Banks paying their own tax liabilities through their branches or authorized branches of other banks.
2. Banking transactions involving autonomous bodies, municipalities, corporations, or local bodies.
3. Capital payments to cover losses of these bodies.
4. Prefunded schemes by Central or State Government departments.
5. Transactions under the Gold Monetisation Scheme, 2015.
6. Letters of Credit or Bank Guarantees for Ministries or Departments.
7. Any other tasks deemed ineligible by the RBI or Government.

Reporting and Claiming Agency Commission

Agency banks must adhere to strict reporting requirements. For example, transactions must be reported to the RBI’s QPX/e-Kuber system by 6 PM on all working days. Delays in reporting State government transactions beyond the 8th of the succeeding month require confirmation from the relevant State authorities. Central Government transactions reported after 90 days need prior approval from the concerned ministry or department.

Rates and Conditions for Agency Commission

The RBI pays agency commission at rates determined by it. Effective July 1, 2019, the rates are:

• Physical receipts: ₹40 per transaction.
• Electronic receipts: ₹9 per transaction.
• Pension payments: ₹75 per transaction.
• Other payments: 6.5 paise per ₹100 turnover.

Penalties and Audits

Agency banks must ensure accurate claims for agency commission, supported by certificates from auditors. Wrong claims attract penal interest at the Bank Rate plus 2%. Claims must be submitted within 60 days from the end of the quarter, with reasons provided for any delays.

This Master Circular aims to streamline the process and ensure accurate and timely compensation for agency banks handling government transactions.