New Rule for Cheque Payments kicks in from Jan 1

Ashish M. Shaji

05 Jan, 2021

With a view to enhance the safety of cheque payments, the Reserve Bank of India has come around with some changes that is set to take effect from the beginning of 2021. The RBI has decided to implement Positive pay system. In this article we shall look at the changes or the new rules for cheque payments.

Change under the Positive Pay System

Under the positive pay system in case of cheque, reconfirmation of key details shall be required for payments that are in excess of 50000 rupees. The announcement was made by the governor of Reserve Bank of India Shaktikanta Das on August 6, 2020. State Bank of India, country’s top lender, announced that it would roll the positive pay system for cheques. SBI in a tweet made the statement that it shall introduce positive pay system^[1] from January 1, 2021. It said that the intention behind this is to make the check payments secure.

What is a Positive pay mechanism for cheque payments and how does it work?

Positive pay is an automated fraud detecting tool that matches specific information relating to cheque presented for clearing like the cheque number, date of cheque, name of the payee, the account number, amount and the other details against the list of cheque authorized previously and issued by the issuer.

The concept of positive pay involves reconfirmation of key details of high value cheques. Cheques are processed for payment by the drawee bank depending on the information passed on by its customers at the time of issuance of cheque. At the time when the beneficiary submits the cheque for encashment, the details of the cheque are compared with the details given to the drawee bank via positive pay.

When the details match, the cheque is honoured. Where there is any mismatch in the details of cheque, then such discrepancy or mismatch is flagged by the CTS (Cheque Truncation System) to the drawee bank and the presenting bank, which shall conduct redress measures.

The Reserve Bank stated that the Cheque Truncation System standard of 2010 specifying minimum security features on cheque acts as a deterrent against frauds related to cheques. It further mentioned that standardization of field placements on cheque enables straight through processing by the use of optical/image character recognition technology.

This Cheque Truncation System for clearing cheques is operational pan India and currently covers 2% and 15% of total retail payments in respect of volume and value respectively. It may be noted that the average value of a cheque cleared in CTS is 82000 rupees presently.

Read our article:Reasons for implementing the Digital Banking

What is Cheque Truncation System?

It is the process of stopping the flow of the physical cheque which is issued by the drawer at some point by the presenting bank enroute to the paying bank branch.  In its place, the electronic image of the cheque is transmitted to the paying branch via the clearing house with information such as data on the MICR band etc.

All about the new rule for cheque payments

Here are the things to know regarding the new rule (Cheque payments):

• Once an account holder issues a cheque to anyone then as per the positive pay mechanism, they shall be required to share cheque details with the bank. The account holder is required to share the issued cheque details such as the cheque number, payee name, amount etc. with the bank along with an image on the front and the back side of the cheque, before its handed over to the beneficiary.
• Before the bank makes payment against the cheque, it shall have to match the details available on the cheque with the details that the issuer has provided. In simple words, when the beneficiary submits the cheque for encashment purpose, the details of the cheque are compared with the details provided to the bank. If the details matches, the cheque is honoured.
•  The positive pay involves the process of reconfirming key details of high value cheques. Any discrepancy in the same is flagged by CTS to the drawee bank and presenting bank, who shall take redressal measures. The National Payments Corporation of India shall develop this facility of positive pay in CTS and shall make it available to the participating banks.
•  Banks will enable it for the account holders issuing cheques for 50000 rupees and above. Availing this facility is at the discretion of the account holder but banks may consider making it mandatory in case of cheques of 5 lakh and above.
• Cheques that comply with the instructions shall be accepted under the dispute resolution mechanism at the CTS grids. Member banks can implement same arrangements for cheques cleared/collected outside CTS as well.

What is the benefit of the rules for cheque payments?

The benefits can be summarized as under:

• The drawee bank is aware of the issuer, the details of the high value cheque that is above 50000 rupees, he has issued.
• Without it, if a cheque is presented, the drawee bank may reject payment and examine the case. The positive pay mechanism is set to benefit both issuer and the beneficiary.
• In case of an issuer the benefit is that there will not be fraudulent cheques encashed out of his account.
• In case of beneficiary, the cheques handed out to him shall most often than not get honoured.

Why Positive Pay system is needed?

Considering the rise in frauds involving high value cheques, the need for this system is highly imperative. The RBI believes that this system is expected to augment customer safety in cheque payments. It will also reduce the occurrences of frauds that happen due to tampering of cheque leaves. 

The main aim of this system is to deter cheque frauds happening due to the modification, counterfeiting and forging of cheques. This system may lead to safer cheque transactions.

Conclusion

Read our article:RBI Notification: Positive Pay Mechanism for Cheques