Physical Clearing Process Cycle

What is Clearing Process:-

 Todays Post deals with the Physical Clearing of Cheques.

All payment instructions made through the medium of cheques are debit transactions. A debit transaction occurs when the intended recipient initiates the payment transaction by depositing the instrument in his bank. During the course of a business day a number of instruments are deposited with a bank for collection by its customers. These instruments may be drawn on different branches of various banks and a collecting bank has to physically present the instruments for collection to each drawee bank/branch. The clearing system provides a convenient and well established institutional mechanism to take care of the problem of physical delivery of instruments as well as funds transfer between different banks.

The use of Physical Instruments for funds movement in the country is coming down, but still the number is significant for us to focus in it.

ePayments was born out of Physical Cheques only!!

If the Clearing House is not present, the whole Banking System would collapse!!

Basically there are two types of Clearing

01) Local Clearing

02)                       Out-Station Clearing

A new clearing has been introduced by Reserve Bank of India, in June 2008 i.e Speed Clearing.

01) Local Clearing: Clearing of cheques situated in the jurisdiction of the respective Clearing House.

02)                       Out-Station Clearing: Clearing of Cheques not situated in the jurisdiction of the respective Clearing House.

At present,  outstation cheques are paid through two channels viz. on Collection basis or through National Clearing (Inter-city Clearing). This requires movement of cheques from the Presentation centre (city where the cheque is presented) to Drawee centre (city where the cheque is payable) which increases  the realization time for cheques.

      In India, the clearing system is local and confined to a defined Jurisdiction covering all the banks and branches situated in the area under a particular zone. The clearing house is a voluntary association of banks under the management of a bank where the settlement accounts are maintained. Wherever Reserve Bank of India has its office (and a banking department), the clearing house is managed by it. In the absence of an office of the Reserve Bank, the clearing house is managed by the State Bank of India, its associate banks and in a few cases by public sector banks.

The complete list of Clearing Houses in India, can be accessed @

http://www.rbi.org.in/Scripts/bs_viewcontent.aspx?Id=1056

As on 30/09/2009, 30^th September, 2009, 1139 Clearing Houses were functioning in India.

Time Frame for Collection of Cheques as laid down by Reserve Bank of India. Overall, each Bank is free to form its own Cheque Collection Policy. However, it should be in tune with the following Reserve Bank of India, guidelines.

QUOTE

For local cheques credit and debit shall be given on the same day or at the most the next day of their presentation in clearing. Ideally, in respect of local clearing, banks shall permit usage of the shadow credit afforded to the customer accounts immediately after closure of relative return clearing and in any case withdrawal shall be allowed on the same day or maximum within an hour of commencement of business on the next working day, subject to usual safeguards.

(iii) Timeframe for collection of cheques drawn on state capitals / major cities / other locations to be 7/10/14 days respectively

UNQUOTE

This is an extract from Lr.No.DPSS.CO. (CHD) No. 873 / 03.09.01/ 2008-09, dt.November 24, 2008, to The Chairman & Managing Director / Chief Executive Officer
All Scheduled Commercial Banks.
The complete letter can be accessed @
http://www.rbi.org.in/scripts/NotificationUser.aspx?Mode=0&Id=5008