Indian Clearing System – Introduction of new Return Reason 88

            With the adoption of Uniform Holiday Calendar under Cheque Truncation System (CTS), a new Return Reason has been introduced.

Under CTS, inward clearing is generally processed in a centralised manner by banks at the CTS location.

However, in exceptional cases, where the reference to base branch is required and the base branch is closed on account of local holiday, the drawee bank at the grid location may return the instrument to the presenting bank under return reason code 88 as enumerated in annexure D of Uniform Regulations and Rules for Bankers' Clearing Houses with the description “need reference to the drawee branch which is closed on account of local holidays/issues”.

Return Reason 88 will be a technical return reason, and will have to re-present by the Presenting Bank, without the physical cheque being returned to the customers.

Drawee Banks have to be very careful while choosing this return reason as the onus will be on them, to prove that there was a holiday in the Base Branch state, in case of any dispute.

ECS Debit – Return Reasons

ECS Debit – Return Reasons

It is observed that the number of ECS Transactions being RETURNED by the Destination Banks are  on the increase.

Your ECS Debit transaction can be rejected by your Banker for the following reasons

As per RBI’s Electronic Clearing Service (Debit Clearing) Procedural Guidelines, the following are the Standard Return Reasons.

Code No.        Reasons for Return

1.                    Account since closed / transferred

Explanation: - Account since closed – The destination account has been closed. Obviously, this has to be returned.

Account Transferred: This reason was valid in a de-centralised environment, when the ECs transactions were being routed to the base branch.

However, under CBS this is a very sparingly used Return Reason.

2.                    No such account:

Explanation: The account number in the ECS Transaction is not in the Destination bank’s books.

Potential causes: The customer’s account has been migrated to the CBS domain, and a new number allotted. However, the ECS transaction is still coming with the old Account number.

3.                    Account description does not tally

Explanation: The account holder’s name in the destination bank and the account holders name in the ECs transaction do not match.

This is a very rare reason, as the Account description is tallied at the time of the Mandate Acceptance by the Destination bank.

4.                    Balance insufficient

Explanation: Simple, inadequate balance to debit the ECS transaction amount. It is to be noted, that there should be sufficient balance at the time of the debit, and not during the business day. For eg: When the destination account is debited with the ECS transaction at 11.30am, 14/07/2010, sufficient balance should be there. It is of no use, if there was sufficient balance at 10.00am or 2.00pm on the same day.

5.         Not arranged for / exceeds arrangements

Explanation: This reason is used for Overdraft Accounts, where the drawn balance exceeds the available balance.

6.         Payment stopped by drawer

Explanation: The destination account holder has instructed his/her banks for  Stop Payments of the Particular ECS Transaction.

Potential causes: Dispute between the account holder and the Beneficiary. Loan account is closed, but still the ECS transactions are being routed.

7.         Payment stopped under court orders

Explanation: The message is clear, Payment stopped under court orders

8.         ECS mandate not received

Explanation: The Destination bank has not received the ECS Mandate.

ECS Mandate is the Debit Authorisation by the customer to the bank.

9.                    Miscellaneous (to be specified)

Explanation: Ah, this is the most exciting or treacherous Return Reason

Will explain in detail in tomorrow’s post

‘Prohibiting alterations / corrections on cheques ' - Clarifications

 Prohibiting alterations / corrections on cheques ' - Clarifications

Reserve Bank of India, on 22^nd June 2010, issued a clarification regarding ‘prohibiting alterations / corrections on cheques'.

This must have caused disappointment in among many!!

The Circular can be viewed at  http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=5741&Mode=0

The above circular is in response to it’s original circular dt.22/02/2010

@ http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=5509&Mode=0

The whole issue is a classic example of mis-communication. The intention of RBI was to convey the proposed changes under the Cheque Truncation Scenario, when the cheques will be processed on Scanned Images.

Nowhere in the Original circular, did Reserve Bank of India, mention that the proposed enhancements would be effective from 01/07/2010.

A top official of a leading bank was quoted in the media, stating that the new rules would be effective from 01/07/2010, and this was picked up by all.

Newspaper articles, blogs, internet sites, discussion forums were all excited by this notification of ‘prohibiting alterations / corrections on cheques'.

It  is nice that RBI promptly issued a clarification.

This Clarification is very clear and also lays down the road-map,

0101)   That the "prohibiting alterations / corrections on cheques'", is applicable for CTS Locations.

02)That it is the Collecting Banker’s responsibility to ensure, ab initio, that such cheques are not accepted for presentment in CTS.

03) That this is not applicable to cheques cleared under other clearing arrangements such as

 -- MICR clearing,

 -- non-MICR clearing,

 -- over the counter collection (for cash payment)

 -- or direct collection of cheques outside the Clearing House arrangement .

04)That this prescription will be effective from 01/12/2010.  Now all the stake-holders have a definite deadline to adhere too.

05) That with regard to other aspects contained in the RBI  circular dt.22/02/2010, separate communication will follow from Indian Banks' Association / National Payments Corporation of India.

Handling of Cheque Returns under Cheque Truncation Process - CTS

Handling of Cheque Returns under Cheque Truncation Process - CTS

In simple terms, Cheque Truncation System, is ”Once deposited, the cheque is scanned and its electronic image transmitted through the entire clearing cycle, instead of the physical cheque itself.

The physical cheques are retained with the collecting bank, instead of the paying bank.

The basic doubt that arises amongst the common man, is what happens when a Cheque is dishonored under CTS?

Hence in ideal conditions, once the Cheque is dishonored under CTS, an Image Return Document (IRD) is generated and sent to the payee.

In many countries, where the CTS has been fully implemented, this IRD is a legal substitute for the dishonored cheque.

However, in our country CTS is still only functional in Delhi (NCR). Hence, an IRD will not solve the purpose. Further, if IRD are issued in the present scenario, there will be chaos at the Banks customer’s centers and branches

To overcome this issue, a-via medium was found out, which was implemented in our country.

In Delhi (NCR), once the cheque is dishonored, under CTS, the collection bank, removes the physical cheque from its possession and hands over to the customer along with the cheque return memo.

As it is, now also the Returned/dishonored cheques are returned to the collection banker by the paying banker, for onward transmission to the customer.

Hence, the end process to the customer remains the same, irrespective of whether the cheque is transmitted physically or through CTS.

For the IRD to be acceptable in our country, it will take a very long time, may be two decades or so.

Dealing with incidents of frequent dishonour of cheques

  

Dealing with incidents of frequent dishonour of cheques

  

Reserve Bank of Inda, Department of Banking Operations and Development, vide paragraph 15.4 of our Master Circular DBOD.No.Leg.BC.9/ 09.07.006/2009-10 dated July 1, 2009 on Customer Service has advised Banks to take certain steps for dealing with incidents of frequent dishonour of cheques of Rs. 1 crore and above.

Now vide  Lr.No. RBI/2009-10/213 DBOD.No.Leg.BC.59 /09.07.005/2009-10, dt November 9, 2009, addressed to All Scheduled Commercial Banks (Excluding RRBs), has advised Banks to have a Board approved policy for dealing with frequent dishonor of cheques of value of less than Rs. 1 crore.  Reserve Bank of India is clear that this policy should also deal with matters relating to frequent dishonor of ECS mandates.

This complete Notification can be accessed @

http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=5353&Mode=0

Basically, Post Dated Cheques/ECS Debit Mandates issued for Loan Re-payments, cannot be shifted to ePayments (RTGS or NEFT)

In case customers issue cheques to Government Agencies, Utility Providers, customers ensure sufficient funds are available in the account, to clear such cheques.

However, Banks and other stake-holders should explore if Cheques issued for other than the above mentioned two categories, can be shifted to ePayments. 

RTGS/NEFT Transactions are executed by Banks only if Balance is there in the account to DEBIT. Hence, there will no question of DISHONOUR !!!

This will reduce the number of frequent dishonor of cheques, leading to few cases to deal with, which in turn will increase the operational efficiency of the Banks.