Non-resident Indians (NRIs) who issue high value cheques in India have been warned they will bounce if they do not inform their banks well in advance about the issuance as required under a new system introduced by the Reserve Bank of India.
The banking regulator issued guidelines for banks to implement the Positive Pay System, which came into effect from 1 January 2021, to safeguard customers against cheque frauds, especially transactions involving large sums.
But banks only started informing their NRI customers about the change recently.
The Positive Pay System is a tool designed to detect suspicious activities in light of the ever-increasing cases of bank frauds in the country. The modus operandi sees the cheque amount altered while the signature will remain intact.
As per the new system, customers who are issuing high value cheques will have to inform their respective banks about the cheque details via net/mobile banking or a physical visit to the branch.
The regulator has directed banks in India to implement the system of verification to safeguard all parties involved from fraud activity.
The RBI initially issued the notice to all banks to verify details of cheques valued at INR 50,000 (£485, $66, €574) and above, at the discretion of the account holder. However, the central bank has since advised banks to make it mandatory for cheque payments exceeding INR 500,000.
Verifying for clearing
The system requires the banks to verify information including the cheque number, date, payee name, account number, the amount, among other key details.
This is then verified against the previous cheques issued by the issuer. The banks, in turn, match specific information related to the cheque that is issued by customer for clearing.
If the issuer fails to inform the bank prior to the cheque being issued, the cheques will bounce, potentially leading to disputes and legal proceedings.
Customers are required to submit the details of their high value cheques in advance, at least 24 hours ahead of the clearance, to their banks.
All details provided by the customer will be verified while clearing the payment and any discrepancy is notified to the customer while the payment is stopped. Customers will be notified through email or SMS whether the cheque is accepted or rejected for any reason, so that the issuer will have full information about the clearance of his cheques.
How NRIs affected
NRIs could be quite heavily impacted as some issue high value cheques; particularly those who have businesses in India or invest in the Indian markets, property or corporate deals, issue high value cheques. Some of them, who do transactions through their legal proxies with proper authorisation or power of attorney, still use cheques issued by them.
NRIs are offered the facility of submission through their internet banking, banking apps, ATM machines, phone banking channels and emails.
“NRIs holding bank accounts in India have started receiving these notifications from their banks. It is important to understand the implications and benefits of the new system to make safe and secure cheque transactions in India,” said Benoy Sasi, international lawyer at DIFC Courts, Dubai.
“As it is voluntary in nature at present for the customers to provide the details of high value cheques in advance to their banks, if they do not follow the system, they run the risk of cheque bounces, leading to legal proceedings,” Sasi added.
The new system is an additional safety layer for customers in the event of disputes involving banks, the cheque issuers and the beneficiaries. The RBI has notified that only those cheques that are registered in the Positive Pay System will be accepted under its dispute resolution mechanism.
Continuing measures
In yet another measure to check banking frauds, the central bank introduced e-mandate rules on auto debits linked to credit and debit cards in the case of recurring payments.
The e-mandate rules notified by the banking regulator require that all kinds of recurring or repetitive payments, made through credit and debit cards which are of value of INR 5,000 and above, must be preceded by an advance notification from the bank informing the customer about the scheduled payment.
