Cheque transactions by our bank or any other bank follow a structured process, rooted in traditional banking practices, which involves multiple steps:
Cheque Issuance: An account holder (drawer) writes a cheque, providing crucial details: the name of the recipient (payee), the exact monetary amount (both in numbers and words), date of issue, and the drawer’s authenticated signature.
Cheque Presentation: The payee deposits the cheque into their bank account. This bank, known as the collecting bank, can receive the cheque either through physical submission at a branch or via electronic channels if available.
Verification and Endorsement: The collecting bank scrutinizes the cheque for validity and signs or stamps it to endorse, confirming it has received the document and verified its preliminary authenticity.
Clearing Process: The cheque is sent to a centralized clearing system or directly to the drawee bank (where the drawer’s account is located). In the clearing system, banks aggregate and reconcile cheques and other instruments drawn on each other, facilitating the process of settling the transactions.
Funds Transfer: Upon receipt, the drawee bank further verifies the cheque, focusing on the drawer’s account balance and the authenticity of the signature. If the cheque is valid and the account has sufficient funds, the drawee bank debits the drawer’s account for the cheque amount.
Settlement: The cleared amount is credited to the collecting bank’s account. This bank, in turn, credits the amount to the payee’s account, thus completing the transaction cycle.
Cheque Return: If the cheque is dishonored (due to insufficient funds, signature mismatch, etc.), it is returned to the collecting bank with a specific reason code. The collecting bank then notifies the payee of the failed transaction.
This sequence of actions delineates the methodical and precise process banks follow to transact cheques, ensuring financial security and adherence to banking regulations.