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Bank Draft Vs Certified Cheques

BANK DRAFTS :

A bank draft is an order to pay a sum of money on demand. It is addressed by a banker either to itself or to another banker and drawn on its head office or at a branch. It is issued and signed by two authorized signing officers of the bank; one being a “counter signature”. Once “signed”, bank drafts become a statutory obligation of the signing bank and are irrevocable.

Particulars Required for a bank draft are: The date, amount payable, and payee’s name must be typed on the draft prior to its delivery. It can be payable to a customer or creditor. On purchasing, the amount paid is placed in a special reserve account. When presented for payment, funds are withdrawn or collected from that account. The item is then collected through the ACSS. Not a Guarantee of Payment, although bank drafts are substitutes for cash, they cannot always be converted to cash immediately on deposit to a holder’s bank and are not a guarantee of payment. A collecting bank must be certain that the signatures are genuine and authorized. Funds are not realized until actual collection. The amount of the draft or the geographical distance between the place of issue and deposit, are factors that can increase/decrease the time of collection. Many devices exist for discovering counterfeit banknotes; however no corresponding devices exist for the discovery of forged or unauthorized signatures on a bank draft or certified cheque.

CERTIFIED CHEQUES:

“Certification” is the name given to the marking of a cheque by a bank to show that its customer has an existing account with sufficient funds to meet the drawn amount. Certification is demonstrated by a mark on the cheque, typically a stamp marked “certified”. It must be signed by a bank or other financial institution. Certified cheques are not a guarantee of payment; items bearing forged endorsements can be returned for up to six years.

Particulars of Payment Certified cheques are typically drawn by a bank’s regular customer and payable to a creditor or an endorsee. They are payable on demand and collected through the ACSS. The customer’s account is then debited and the amount set aside into a special suspense account. When presented for payment through the ACSS, the amount is charged to that account.

A bank may be able to refuse payment on a certified cheque, if it can be demonstrated that a payee would be unjustly enriched by payment. Certification therefore is a direct promise of a bank to pay, independent of a customer’s obligation to pay, even where a bank has mistakenly certified a cheque.

Verification is required whether funds are direct deposited by bank draft or certified cheque, there is no appreciable difference in risk in comparison to closings in the past. Remember however that financial institutions may not post funds to a trust account until the next business day and sometimes later if the other lawyer’s financial institution is not one of the major institutions, or, if a cheque is drawn on an account in another region of the country. Verification of both items is necessary as the ACSS does not guarantee payment by bank draft or certified cheque.

What is Travelers Cheques

Travelers Cheques are cheques issued by financial institution that can be used as a form of payment. These are mostly used by people who are travelling as it can be easily replaced by the issuing financial institution if lost or stolen. They are widely accepted all around the world. These are issued in various denominations such as US Dollar, Euro, Japanese Yen, Canadian Dollar, Australian Dollar, and British Pound.

At the time of purchase, the cheques are required to be signed as for the security purpose. The user has to again sign the cheque at the point of redemption so as to match both the signatures. At the time of purchase of cheques, the customer should be provided with the listing of the cheques purchased.

When using a cheque as the mode of the payment, customer provides the cheque to the merchant. He signs the cheque in presence of the merchant. Once the merchant verifies both the signatures, the applicable change is given back and the transaction is completed.

NO CHEQUE RETURN CHARGES WHERE NO CUSTOMER FAULT: RBI

Delay in re-presentation of technical return cheques and levy of charges for such returns


As you are aware, banks are expected to indicate the timeline for realization of local/outstation cheques in their Cheque Collection policy(CCP) and charges for cheque returns to be levied in an upfront manner with due prior notice to the customers as enumerated in RBI circulars no. DPSS.CO. (CHD) No. 873 / 03.09.01 / 2008-09 dated November 24, 2008 and DBOD.No.Dir.BC. 56 /13.03.00/2006-2007 dated February 2, 2007 respectively.


2. However, recently, instances have been brought to our notice where banks are (i) levying cheque return charges even in cases where customers have not been at fault in the return and (ii) delaying the re-presentation of the cheques which had been returned by the paying banks under technical reasons. Both of these issues result in unsatisfactory customer service.

3. It is, therefore, considered necessary to streamline the procedure followed by all banks in this regard. Accordingly, banks are advised to adhere to the following instructions with immediate effect:

  • Cheque return charges shall be levied only in cases where the customer is at fault and is responsible for such returns. The illustrative, but not exhaustive, list of returns, where the customers are not at fault are indicated in the annex.
  • Cheques that need to be re-presented without any recourse to the payee, shall be made in the immediate next presentation clearing not later than 24 hours(excluding holidays) with due notification to the customers of such re-presentation through SMS alert, email etc.

4. Banks are accordingly advised to reframe their CCPs to include the procedures indicated in paragraph 3(i) and 3(ii) above, and may note to give publicity to their revised CCPs for better customer service and dissemination of information.

5. The above instructions are issued under Section 18 of the Payment and Settlement Systems Act, 2007 (Act 51 of 2007).

6. Please acknowledge receipt and confirm compliance.

 

Yours faithfully,

(Vijay Chugh)

Chief General Manager

 

Annex

 

Illustrative but not exhaustive list of objections where customers are not at fault

(Applicable for Instrument and Image-based Cheque Clearing as detailed in Annexure D to Uniform Regulations and Rules for Bankers’ Clearing Houses)

Code No.

Reason for Return

33

Instrument mutilated; requires bank’s guarantee

35

Clearing House stamp / date required

36

Wrongly delivered / not drawn on us

37

Present in proper zone

38

Instrument contains extraneous matter

39

Image not clear; present again with paper

40

Present with document

41

Item listed twice

42

Paper not received

60

Crossed to two banks

61

Crossing stamp not cancelled

62

Clearing stamp not cancelled

63

Instrument specially crossed to another bank

67

Payee’s endorsement irregular / requires collecting bank’s confirmation

68

Endorsement by mark / thumb impression requires attestation by Magistrate with seal

70

Advice not received

71

Amount / Name differs on advice

72

Drawee bank’s fund with sponsor bank insufficient(applicable to sub-members)

73

Payee’s separate discharge to bank required

74

Not payable till 1st proximo

75

Pay order requires counter signature

76

Required information not legible / correct

80

Bank’s certificate ambiguous / incomplete / required

81

Draft lost by issuing office; confirmation required from issuing office

82

Bank / Branch blocked

83

Digital Certificate validation failure

84

Other reasons-connectivity failure

87

‘Payee’s a/c Credited’ – Stamp required

92

Bank excluded

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