From 1^st January, 2021 intimate your bank or else large cheques will bounce

From 1^st January, 2021, your cheque of a larger amount of Rs 50,000 and above will bounce unless you intimate your bank in advance on drawing up such a cheque. The new system brought in by the Apex Bank introduces a double check on the cheque transactions.

The Reserve Bank of India (RBI), also known as the Apex Bank of India was established as India’s central bank to regulate the issue of banknotes and the keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage and to formulate a modern monetary policy framework to meet the challenge of an increasingly complex economy.

According to Section 18 in The Payment and Settlement Systems Act, 2007, the Reserve Bank may, if it is satisfied that for the purpose of enabling it to regulate the payment systems or in the interest of management or operation of any of the payment systems or in public interest, it is necessary so to do, lay down policies relating to the regulation of payment systems including electronic, non-electronic, domestic and international payment systems affecting domestic transactions and give such directions in writing as it may consider necessary to system providers or the system participants or any other person either generally or to any such agency and in particular, pertaining to the conduct of business relating to payment systems.

In exercise of their powers of the said Section 18, to make cheques safer, the RBI has asked banks to implement a system called Positive Pay from January 2021. The system adds an extra layer of security to reduce cheque-related frauds.

What is the Positive Pay System?

• The Positive Pay system involves a process of reconfirming key details of large value cheques
• If one is issuing a larger amount cheque, they are required to inform their bank about it electronically through channels like SMS, mobile app, Internet banking, ATM, etc., providing certain minimum details of that cheque like date, name of the beneficiary, payee and amounts.
• These details will be cross-checked when the cheque is presented for payment in the Cheque Truncation System (CTS).
• Any discrepancy will be immediately flagged by CTS to the drawee bank and presenting bank, who would take redressal measures.
• Under this system, key details will need to be re-confirmed for payments above Rs 50,000.This will need to be done at the discretion of the account holder.
• While availing of this facility is at the discretion of the account holder, banks may consider making it mandatory in case of cheques for amounts of Rs 5 lakh and above.

Let us understand the same with an example given below

• Suppose Mr A has issued a cheque to Mr B of Rs 85,000.
• Mr A will submit details electronically, through channels like SMS, mobile app, internet banking, ATM, and so on.
• Mr A will need to enter details such as name of the person/organisation (i.e. Mr B) to whom the cheque is issued, the amount, cheque number and the date of issue.
• Once Mr A shares the details, the bank’s system will upload the data into the centralized data system of Positive Pay.
• On receiving the cheque, the bank will verify the details from the central database. Banks will make the payment if the details which the account holder has provided matches with those on the cheque.
• In case of a mismatch, the bank will reject the cheque. The system allows banks to authenticate the cheque twice–once by matching the signature of the issuer and then by cross-checking details.
• Banks also embed several security features in the cheque using which they can verify whether the cheque leaf is genuine or not. Some of them include watermarks, logo, pantographic image, serial number, account number, and there could be features that are not visible under normal light.

RBI’s advice to the Banks

• The RBI circular issued on September 25 says the National Payment Corporation of India (NPCI) shall develop the facility of the positive pay in CTS and make it available to all participant banks.
• Banks have been advised to implement similar arrangements for cheques cleared and collected outside CTS.
• All scheduled commercial banks including regional rural banks, cooperative banks and small finance banks have been advised by the RBI to adopt the new scheme in the next three months to be ready for transition from January 1.
• They have been also told to create adequate awareness among their customers on features of the positive pay system through SMS, display in branches, ATMs as well as through their website and internet banking.
• The banks, in turn, shall enable it for all account holders issuing cheques of Rs 50,000 and above.

Some banks such as IDBI Bank have already started encouraging customers to use this feature. According to the bank’s website, customers can update details of cheques via IDBI Bank GO Mobile+ app.The CTS for clearing the cheques is already operational pan-India but it covers only 2% and 15% of total retail payments in terms of volume and value respectively. The average value of a cheque cleared in the system is presently is Rs 82,000. Only those cheques that are compliant with the above instructions will be accepted under the dispute resolution mechanism at the CTS grids.

The new system seeks to improve upon the CTS-2010 standard specifying minimum-security features on cheque leaves that acts as a deterrent against cheque frauds, while standardisation of field placements on cheque forms enables straight-through-processing by use of optical / image character recognition technology. The Positive Pay system will prevent fraudsters emptying your bank account with fake cheques or tampering of your cheque leaves.

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