RBI Notification: Positive Pay Mechanism for Cheques

Ashish M. Shaji

19 Aug, 2020

The Reserve Bank of India(RBI), while delivering a statement on Development and Regulatory Policies, notified that it is set to introduce an RBI Notification Positive Pay Mechanism for Cheques above 50000 rupees.

What is the objective of the RBI notification on the Positive Pay Mechanism?

The main objective of this measure is to avert cheque related frauds. RBI stated that this process will increase the safety in cheque payments and will reduce the instances of frauds taking place due to the tampering of cheque leaves.

What is Positive Pay Mechanism for Cheques?

According to the RBI policy statement issued on 6 August 2020, the Cheque Truncation System (CTS) -2010 standard specifying minimum security features on cheque leaves acts as a deterrent against cheque frauds, whereas standardization of field placements on cheque forms enables straight-through processing by use of optical/image character recognition technology.

With a view to augment customer safety in cheque payments and reduce instances of fraud occurring on account of tampering of cheque leaves, the RBI decided to introduce a mechanism of positive pay for all cheques of value 50000 rupees and above.

What will be the process under the Positive Pay Mechanism as per the RBI Notification?

As per RBI under this mechanism, cheques will be processed for payment by the drawee bank based on the information passed by its customer at the instance of issuance of the cheque.

Under the Positive Pay Mechanism, the issuer shall first share the details of the cheque so issued. The details can be the cheque number, date, name of the payee, account number, amount, etc. An image of the front, as well as the reverse side of the cheque, is also required to be shared along with it before it is handed over to the beneficiary.

At the time of submission of the cheque for encashment by the beneficiary, the details are matched with the details provided to the bank through the Positive Pay. When the details match, the cheque is honored. In case of mismatch, the cheque is referred to the issuer.

It further stated that this measure would cover approximately 20 % and 80 % of total cheques issued in the country by volume and by value, respectively. Operational guidelines for the purpose will be separately issued according to the RBI policy statement. It will ensure customer safety and chances of fraud will be reduced.  

What is Cheque Truncation System (CTS)?

The Cheque Truncation System (CTS) is a process of stopping the flow of a physical cheque issued by a drawer at some point by presenting a bank en-route to the paying bank branch. Instead of it, an electronic image of the cheque is transmitted to the paying branch through the clearinghouse, with relevant information such as data on the Magnetic Ink Character Recognition (MICR) band, date of presentation, presenting bank, etc.

Cheque Truncation, therefore, eliminates the need to move the physical instruments across bank branches, other than in exceptional cases for clearing purposes.

 According to the RBI policy statement issued on 6 August 2020, the Cheque Truncation System (CTS) for clearing cheques is operational pan India, and it covers 2 % and 15 % of the total retail payments in terms of the volume and value; currently, the average value of a cheque cleared in the Cheque Truncation System is 82000 rupees.

RBI had said earlier this year that it should introduce a pan India Cheque Truncation System by the month of September 2020 with a view to making cheque clearing faster and safer. Further, the Reserve bank, in its statement, on February Development and Regulatory Policies, had stated that the Cheque Truncation System, which is presently operational at the major clearing houses of the country, had established well, and it has also made significant efficiency gains. Therefore a pan India Cheque Truncation System shall be made operational by September 2020.

Conclusion

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