Local recipients paying for US cheque clearing sloth

A senior executive of a large corporate deposited a $4,000 cheque in his account with a new generation private sector bank in Mumbai on November 2.

The cheque was sent by his son based in New Jersey. His account got credited on December 3, well over a month after the cheque was deposited for clearing. His son's bank account statement, however, showed a debit for the amount on November 9.

The executive had "lost" almost Rs 5,000 by the time the money was credited to his account, as the rupee had appreciated sharply against the dollar.

He did not find reasons given by the bank for the "delay" in crediting to be satisfactory. The bank officials told him that "there is an RBI rule that the amount should be credited 21 working days later".

The fact is the RBI has not given any such ruling. Absence of transparency in banks' cheque collection policies normally cause the confusion. In fact, the cheque clearing laws of the United States are to be blamed for the delay.

US regulations stipulate a "cooling period" after a cheque is sent for clearance. The amount gets credited to the nostro account of the Indian bank on the third or fourth day after the cheque reaches the US bank on which it has been drawn. However, the amount cannot be withdrawn by the Indian bank as the credit given is "uncleared" one.

Nostro is derived from the latin term "ours". This is an account that an Indian bank holds with another bank in a foreign country. These accounts are usually in the currency of the foreign country.

A public sector bank official said the amount deposited in the nostro account is kept under watch during the cooling period. The US bank has the right to recall the uncleared credit given during the cooling period "for any reason".

The cooling period for a cheque drawn on a bank branch in New York is six working days. For a cheque drawn on a bank outside New York, it is 18 working days.

Bankers said the clearing systems in the US are not very efficient as there are a lot of manual interventions. The cooling period is meant to eliminate the risk involved in the physical management of the cheque clearing process. They said US clearing laws have to be adhered to and they cannot be questioned.

For a cheque drawn on a bank in New York, a depositor gets credit in about 12 days. But for cheques drawn on bank branches outside New York, the period can stretch up to about 30 days.

On the other hand, cheque clearing systems are more efficient in London. It takes six days for a cheque drawn on a bank in the United Kingdom to be cleared.

The time required for clearing rises to 15-20 days in the case of the rest of Europe, except Germany. In Singapore too, about three weeks pass by the time a cheque is cleared because of the nature of the collection mechanism that exists there.

Banks credit money into the accounts of some of their customers much before their foreign cheques are finally cleared. But it depends on the account holders' relationship with their banks.

RBI has asked banks to be transparent in their cheque clearing policies by putting them up on notice boards in branches and also when a new account is opened.

The RBI directive "" part of a circular on November 1, 2004 "" asked banks to formulate their own cheque clearing policies, including domestic clearing. It feels competition will drive banks to cut down on the time taken for cheque clearance.