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Reserve Bank of India to do away with need to return paid government cheques to depts

Easing norms to enhance efficiency of cheque clearing system, the Reserve Bank will do away with the requirement of returning back paid government cheques to the concerned departments.

Presently Cheque Truncation System (CTS) is used to clear cheques that facilitates presentation and payment of cheques without their physical movement.

However, with regard to government cheques, they need to be sent back in physical form after the payment has been made to the government departments.

“The matter relating to dispensation of this requirement was taken up with the government and…the Controller General of Accounts, Ministry of Finance has given approval to our proposal of doing away with the requirement of returning paid government cheques back to government departments concerned,” RBI said in notification.

The revised guidelines would be effective from October 1, 2014, RBI said.

Accordingly, RBI said the government cheques would be paid in CTS clearing based on their electronic images. If any drawee bank wants to verify government cheque in physical form before passing it for payment, the image would be returned unpaid under the reason ‘present with documents’.

“The presenting bank shall ensure that the instrument is presented again in the next applicable clearing session without any reference to the account holder,” RBI said.

Among others, RBI said both the presenting and draweee banks need to preserve the cheques for a period of 10 years.

“In case some specific cheques are required for the purpose of any investigation, enquiry, etc., under the law, they may be preserved beyond 10 years.”

Also, government cheques paid by a drawee bank across its counter by cash withdrawal or transfer also needs truncation and preserved for 10 years and the drawee bank should continue to send the payment scrolls, monthly DMS, to government department.

“They should ensure that the mistakes/discrepancies pointed out are rectified as per procedure, missing images of paid cheques are submitted immediately, the copies of the scrolls duly verified by the PAO are kept on its record.”

Further, it said government may require any paid cheque in physical form for reconciliation, enquiry, investigation, and they can approach the drawee bank.

Source: The Economic times 

Five important rules about Cheques

The Reserve Bank of India recently implemented many new cheque rules to handle the rise in cheque related fraud cases. Some of them has been given below:

1) SMS alerts: The RBI asked banks to send an SMS alert to both payer and drawer when the cheque is received for clearing. Till now, SMS alerts were compulsory only for debit/credit card transactions. While dealing with suspicious or cheques of high value, banks have been asked to alert the customer by a phone call and obtain confirmation from both the parties involved in the transaction. The account holder’s bank branch must also be contacted.

2) Examination of cheques: Besides sending alerts, banks have been asked to examine cheques under UV lamp. This is applicable if the cheque amount goes over Rs 2 lakh. Also, a mechanism must be put in place to ensure multi-level checking of cheques for amount over Rs 5 lakh. Banks are also required to closely monitor how money is deposited or moved out from newly opened transaction accounts.

3) KYC compliance:  Whenever you open a new bank account, you are supposed to go through a process called Know Your Customer or KYC. It ensures that the bank verifies information about you, thus limiting fraud cases. So, the person writing the cheque will be compliant with KYC rules. The RBI now states that even the recipient should be KYC compliant.

4) CTS-2010 cheques: The use of 100% CTS-2010 compliant cheques should be ensured by the bank. As part of the Cheque Truncation System (CTS), an electronic image of the cheque is transmitted to the cheque-writer’s bank branch through the clearing house, along with other relevant information. It helps eliminate the need for physical movement of the cheque for verification. Thus the scope for fraud is reduced.

5) Cheque-handling infrastructure: RBI stated that high quality of equipment and personnel must be ensured for CTS-based clearing.

Basic concepts about Cheques

A cheque is a document that orders a bank to pay money from an account. Technically, a cheque is a negotiable instrument instructing a financial institution to pay a specific amount of a specific currency from a specified transactional account held in the drawer’s name with that institution. Both the drawer and payee may be natural persons or legal entities.

How can you use a cheque?

• Paying money: you can pay anyone with a cheque, so long as they choose to accept it. Some businesses have decided not to accept cheques because there’s a bit of risk involved if the cheque bounces. The Cheque Card Guarantee Scheme – which used to offer retailers protection – was withdrawn in June 2011.

• Accepting money: if someone wants to pay you with a cheque, think carefully before you accept it. You should only accept cheques from people you trust, because if it turns out that the cheque is a fake, or the person doesn’t have enough money to pay it, it might be difficult to get hold of the money.

Cheque writing basics

Writing cheques is simple and safe, as long as you:

• Write the name of the person or organisation you’re paying.

• Draw a line through any blank spaces on the cheque so people can’t add extra numbers or names, and

• Add details (such as a reference or account number) to the payee line after you’ve written the name of the company if the cheque is written to an organisation, bank or building society. This makes sure the money ends up in the right place.

When does the money leave your account?

• When you write a cheque, the money won’t leave your account until the person you give it to pays it into their bank or building society account. Cheques do not have an expiration date but it is common practice to reject a cheque presented for payment bearing a date more than 6 months earlier. This is at the bank or building society’s discretion.

• Make sure you have enough money in your account to cover the value of the cheque until the person has paid it in and the money has been deducted.

• The money usually leaves your account three working days after the person pays in your cheque.

• If you pay a cheque into your account, you’ll be able to use the money four working days later – but you won’t be sure the cheque has cleared (the money is really yours) until six working days after you’ve paid it in. If you use the money in the meantime, you may have to pay it back.