Banks were told by the Reserve Bank of India on Tuesday to ensure clearance of all local cheques within a day and of outstation cheques within 14 days. Compliance is to be reported within a month.
Each bank branch is to display the cheque collection policy prominently on the banks' website. Failure to adhere to the schedule will mean payment of penal interest. Either the CCP specifies how much extra or it will be equivalent to those paid on fixed deposits of comparable maturity.
The move follows an August 2008 order by the National Consumer Disputes Redressal Commission under the Consumer Protection Act, which had observed that by not speedily crediting the collection amount to bank accounts, the banks enjoyed a 'free float.'
'The timeframe for collection specified by the Commission shall be treated as the outer limit and credit shall be afforded if the process gets completed earlier,' RBI said in a circular issued Tuesday evening.
In case of local cheques, RBI says credit and debit should be on the same day or, at most, the next day.
In its order, NCDRC had said: 'The need for passing the interest benefits to payees on their cheque proceeds once the payee's bank (and not payee's account) receives credit from the drawee bank is of significant consequence. No passing of such interest benefits to the customers... leads to undue enrichment of banks at the cost of their customers.'
Nearly 1.3 billion cheques are cleared annually, involving over Rs 1,13,37,000 crore (Rs 113,370 billion). NCDRC said even if you assume that banks are not enjoying a free float for half the cheques, it still means the banking sector enriches itself (at the cost of its customers) to the tune of at least Rs 56,68,500 crore (Rs 56,685 billion) in a year.
It also noted that on an average, banks enjoyed a float of four to six days on local cheques, while they took 11 and 16 days for collecting cheques for metros and state capitals, respectively.
'For other centres it would be anybody's guess what the float period could be,' NCDRC said.
