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Policy on Frequent Cheque Dishonour

Policy on Dealing with instances of frequent Dishonour of Cheques and ECS mandates of values less than Rs 1 cr

Scope :
CTCB New Delhi is a sub-member of Standard Chartered Bank (SCB) and all local clearing are routed through SCB. All inward clearing cheques and ECS mandates issued by CTCB customers are therefore routed through SCB to CTCB. All outward returns on clearing cheques and ECS mandates are advised by CTCB to SCB and the ‘dishonour’ counts for the same are maintained by the branch Operations department.CTCB New Delhi is a sub-member of Standard Chartered Bank (SCB) and all local clearing are routed through SCB. All inward clearing cheques and ECS mandates issued by CTCB customers are therefore routed through SCB to CTCB. All outward returns on clearing cheques and ECS mandates are advised by CTCB to SCB and the ‘dishonour’ counts for the same are maintained by the branch Operations department.

Reserve Bank of India has called upon Banks to have a Board approved policy to deal with incidence of frequent dishonor of cheques of value less than Rs 1 crore. Dishonour of cheque is governed by the provisions of NI Act, 1881 whereas the dishonor of electronic fund transfer for insufficiency of funds in the account is governed by the Section 25 of Payment and Settlement System Act, 2007. Though guidelines existed for the procedure to be followed by branches in the event of return of cheques, there were no specific instructions on the corrective steps to be taken to prevent recurrence of such instances. The procedure to be followed for dealing with frequent dishonor of cheque of value less than Rs 1 crore and failed ECS are outlined in the following paragraphs.

Returning time for dishonoured cheques

The dishounoured instruments are required to be returned / dispatched to the customer promptly without delay, in any case within 24 hours of dishonour.

Procedure for return/dispatch of dishonoured cheques

  • The bank should return dishonoured cheques presented through SCB strictly as per the return discipline prescribed for respective clearing house in terms of Uniform Regulations and Rules for Bankers' Clearing Houses. The branch on receipt of such dishonoured cheques from SCB should dispatch it immediately to the payees / holders within 24 hours of receipt of the instruments.
  • In relation to cheques presented directly to the payee branch across the counter for settlement of transaction by way of transfer between two accounts of the same branch / inter – branch, branch should return such dishonoured cheques to the payees/ holders same day/or next day, in case of dishonour due to insufficiency of fund .
  • Cheques dishonoured for want of funds in respect of all accounts should be returned along with a memo indicating therein the reason for dishonour as "insufficient funds". All dishonour of cheques need to be mentioned clearly under a duly signed bank memo.

Dealing with incidents of frequent dishonour

  • With a view to enforce financial discipline among the customers, branch should introduce a condition for operation of Savings / Current account with cheque facility that in the event of dishonour of a cheque of value of less than rupees one crore drawn on a particular account of the drawer on 4 occasions during the financial year for want of sufficient funds in the account, no fresh cheque book would be issued and branch may close the account after issuing 30 days notice to the customer on subsequent dishonour.
  • The branch may consider closing the account with the prior approval at its discretion, and proper notice to the customer recording the reason of closure of account. However, in respect of advances accounts such as cash credit account, overdraft account, the need for continuance or otherwise of these credit facilities and the cheque facility relating to these accounts should be reviewed by appropriate authority ,i,e, the sanctioning authority.
  • In this connection, with a view to enforce financial discipline among the borrowers availing cash credit and overdraft accounts from our bank, the undernoted clause as additional standard covenant is to be incorporated which will form a part of the sanction letter/arrangement letter of the loan sanctioned:-
    “During the sanction of the Credit facility the bank will have the option of calling up the advance and also withdraw cheque facility in terms of the Bank’s policy on dishonor of cheque, in case incidence of frequent dishonor of cheque/failed ECS (debit) due to insufficient funds is observed in the account. For details, please refer to the policy on dishonor of cheque displayed at the branch Notice Board or the bank website www.chinatrustindia.com”.
  • For the purposes of introduction of the condition mentioned at (a) and (b) above in relation to operation of the existing accounts, branch may, at the time of issuing new cheque book, obtain a letter from the constituents regarding acceptance of the new condition for operation of account. The condition may also be incorporated in the Account Opening Forms as declaration from the constituent.
  • If a cheque is dishonoured for a 3rd time during a financial year in respect of cheques mentioned in para (a) above on a particular account of the drawer during the financial year, branch should issue a cautionary advice to the concerned constituent drawing his attention to aforesaid conditions and consequential stoppage of cheque facility in the event of cheque being dishonoured on next occasion on the same account during the financial year
  • If an account is having cheque book facility and ECS mandate is also registered, then the incidents of dishonour will be taken into account both for dishonour of cheque and failed ECS for computing the number of dishonour of cheques/failed ECSs.
  • Branch may consider for closing the account after serving 30 days notice to the customer in the event of subsequent dishonour of cheque/ ECS mandate in the account.

Dishonour of ECS - Section 25: The Payment & Setllement System Act 2007

  • ECS (Debit) is a scheme under which an account holder with a bank can authorize an ECS user to recover an amount at a prescribed frequency or otherwise by raising a debit in his account. The ECS user has to collect an authorization which is called ECS mandate for raising such debits. These mandates have to be endorsed by the bank branch maintaining the account.

  • As per Section 25 of the Payment and Settlement Systems Act, 2007, where an electronic funds transfer initiated by a person from an account maintained by him cannot be executed on the ground that the amount of money standing to the credit of that account is insufficient to honour the transfer instruction or that it exceeds the amount arranged to be paid from that account by an agreement made with a bank, there is provision to prosecute such person as per above act.

Procedure for handling failed ECS

  • In case of failed ECS due to insufficiency of funds, a communication from the branch is to be sent to the customer intimating him that in case of failed ECS for 4 times in a financial year or otherwise, the branch at its sole discretion may advise the sponsor bank/branch for cancellation of all mandates given for the particular account, whereas for Cash Credit accounts, a review may be put to the sanctioning authority in the matter. The branch should also send the caution memo after 3rd ECS failure in a financial year to the concerned User of ECS for whom the ECS was registered
  • The above conditions are to be incorporated in the ECS mandate which will be signed by the Destination Account Holders.
  • If an account is having cheque book facility in addition to ECS mandate, then the incidents of dishonour will be taken into account for both dishonour of cheques and failed ECS for computing the number of dishonour of cheques / ECS mandate.
  • Branch may consider for closing of account after serving 30 days notice to the customer after subsequent ECS failure, even though the account is not having any cheque book facility and only ECS has been registered.
  • The controller of the branch has to ensure compliance of above procedure so that no laxity is allowed in delayed reporting of such failed ECS and in case of any event of findings of such circumstances, the internal guidelines for dealing with staff accountability would apply. f) Prior information / documentary proof of failed ECS should be provided, if requisioned by any court/consumer forum

Information on Dishonoured Cheques/Failed ECS

  • Data in respect of (1) each dishonoured cheque for amount of Rs.1 crore and above, and below Rs.1 crore and all cheques drawn in favour of stock exchanges, and (2) data in respect of all the failed ECS, should be made part of bank's MIS and presented at the Management Committee Meeting after every quarter.
  • The System should generate the cautionary advice for dishonoured cheques/ failed ECS.

General
For the purpose of adducing evidence to prove the fact of dishonour of cheque on behalf of a complainant (i.e. payee / holder of a dishonoured cheque) in any proceeding relating to dishonoured cheque before a court, consumer forum or any other competent authority, branch should extend full co-operation, and should furnish him/her documentary proof of fact of dishonour of cheque(s).

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