RBI clarifies on honouring of cheques with alterations

The Reserve Bank of India has clarified that its directive to banks, asking them not to honour cheques with alterations, will be applicable only for cheques cleared under the image-based cheque truncation system (CTS). 

At present, the cheque truncation project is being run only in the Delhi area with Chennai expected to move onstream soon. The clarification paves the way for bank branches in metros like Mumbai where CTS is still not operational to accept corrected cheques. RBI’s directive had created a flurry in trade circles and even among utilities that have been turning away cheques with any form of correction or alteration even if the changes were validated by the cheque drawer’s signature. Mobile operator Airtel had sent a message to subscribers, stating that it will not accept cheques with corrections on amount or the payee’s name after July 1. Other service providers and traders who have been accepting post-dated cheques have been turning back cheques with corrections or alterations. “The RBI notification will clear confusion in the minds of customers’ as well as bank officials at the branch level,” said K Unnikrishnan, deputy CEO of Indian Banks’ Association (IBA) — the industry body for commercial banks in India. In a notification posted on its website, RBI has clarified that its directive on prohibiting alterations/corrections on cheques ``will be applicable only for cheques cleared under the image-based Cheque Truncation System (CTS).” RBI has also clarified that this directive 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 even for direct collection of cheques outside the Clearing House arrangement. Cheque Truncation is a system of cheque clearing and settlement between banks based on electronic data/images or both without physical exchange of instrument. Here the cheque is scanned and electronically presented for settlement with the clearing house. Currently, most of the clearing is done on the MICR system and banks often entertained cheques with alterations, be it the name of the party to whom the cheque is issued, or the date or the amount, provided the issuer of the cheques does is signature besides the correction. However, after the central bank issued the directive in February 2010 on alteration on cheques, which was only meant for cheques to be settled under CTS, many banks did not entertain alteration on MICR cheques as well. However, over a period of time when the whole country would move to CTS, alteration of cheques would not be allowed said Mr Unnikrishnan.