Three things to know if you still use cheques

By Bindisha Sarang, Livemint

• Ensure you use a CTS 2010-compliant cheque, and know the types of cheques for different purposes and the consequences of bounced cheques
• A bounced cheque can hit your credit score and the issuer as well as the receiver need to pay a fine

The Indian financial landscape has a variety of payment and fund transfer modes now—from cash, to debit and credit cards to mobile apps like Paytm—but for most of us, cheques remain an integral part of our money lives.

According to a Reserve Bank of India (RBI) report, India’s cheque volumes declined only by 10.8% between 2012 and 2017, though the apex bank does expect the volumes to go down drastically by 2021.

While traders and small businesses still conduct a lot of their transactions through cheques, seniors, who are not so comfortable with mobile-based apps and other digital modes, too prefer them. In fact, even the savvy ones can’t really do away with using them as cheques are still accepted by a lot of educational and other institutes, including financial ones that ask for a “cancelled” cheque before you make an investment. Here are three things all cheque users need to know.

Digital cheques

You may be using a physical cheque book, but at the back-end, banks have moved on to what’s loosely called digital cheques under the cheque truncation system (CTS). Thanks to the system, banks are spared the task of transporting a physical cheque from the presenting bank (where the cheque is deposited) to the drawee bank (where it is issued).
Naveen Kukreja, CEO, Paisabazaar.com, a loan aggregator, said, “Currently, all banks are issuing CTS-compliant cheques to customers. With CTS system offering higher benefits in the form of shorter clearing cycle, nil collection charges, superior verification process, among other things, non-CTS cheques will soon become redundant.”

If you don’t want any delay in clearing, ensure the cheque you are issuing or receive is CTS 2010-compliant. There are several ways to identify a CTS 2010-compliant cheque. It will have the bank’s logo printed in ultra violet ink and a special pattern (waves) called Pentograph printed on it. If you make a coloured photocopy of the cheque, the word “Void” will appear. “CTS 2010” is printed near the perforation (the place where you tear the leaf from the book), the rupee symbol is mentioned in the numerical amount box, and there is a signature space indicator. Use dark-coloured ink to write the cheque as light coloured ink will not get scanned properly.

Types of cheques

Crossed cheque: This type of cheque ensures the money is credited into the account of the person or entity in whose favour the cheque is issued. To cross a cheque you have to draw two parallel lines on the left-hand upper corner of the leaf. It is preferable to write “account payee” or “non-negotiable” along the lines.

Bearer cheque: Here, the payment is made to the person who is acting on behalf of the beneficiary in whose favour the cheque is issued. The word “bearer” has to be written on the cheque and these are risky in nature. If they fall into wrong hands, you may lose your money. Recovering this money may involve several steps, including filing a police complaint.

Order cheque: Here, the payment is made to a specified person. In these cheques, the word “bearer” has to be cancelled, and the name of the person who is supposed to draw the money is to be mentioned. The bank will release the funds to this specified person upon seeing an ID.

Bearer and order cheques are also known as open cheques and you can encash them over the counter at any bank

Loose cheque: When you make a new cheque book request, it typically takes at least five business days before you receive it. In the interim, if you need to use a cheque urgently, banks issue loose cheques for a fee. For instance, ICICI Bank Ltd charges ₹25 per loose cheque leaf.

Cheque bounce

Cheque transactions in India are governed by the Negotiable Instruments Act, 1881 along with the Reserve Bank of India. When a cheque is not processed successfully, it is deemed “bounced”.

A cheque can bounce for a number of reasons such as mismatch in the issuer’s signature with the bank’s records or insufficient funds. Remember that there are consequences to face for a cheque bounce.

First, both the issuer and the receiver of the cheque are fined by their respective banks. The penalty is ₹300 and ₹100, respectively, but may vary from bank to bank. Second, a bounced cheque can hit your credit score.

“A cheque bounce will lead to the lender reporting it as non-payment within the stipulated period, and this will adversely impact your Cibil score. If the bounced cheque is not credit-related, it will not impact your score, but will still affect your financial credibility,” said Sujata Ahlawat, vice-president and head of direct-to-consumer interactive, TransUnion CIBIL, one of the four credit bureaus in India.

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Third, if a cheque is bounced wilfully (where there is no intention to pay or there’s an intention to cheat or there are defaults despite the capacity to repay), the defaulter can be prosecuted. Pratibha Bangera, a Mumbai-based lawyer with law firm Top Rite Juris, said, “If the cheque is dishonoured wilfully, the defaulter can be prosecuted under Section 138 of the Negotiable Instruments Act or Sections 417 and 420 of the Indian Penal Code, 1960.” The defaulter can be punished with a prison term of two years and or has to pay a fine that is as high as twice the cheque amount. However, the issuer can get another chance by re-presenting the cheque within three months of the default. The aggrieved person can take the legal route if the cheque bounces again within 30 days of the cheque return memo, added Bangera. When a cheque bounces, the drawee bank immediately issues a cheque return memo to the banker of the payee mentioning the reason for non-payment.

According to RBI rules, your bank will stop issuing you a cheque book if you are booked repeatedly for the offence of cheque bounce. However, RBI states that such action can be taken only if cheques valued ₹1 crore or above bounce more than four times.

So is you are still using your cheque book, do it carefully.