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Cheque Truncation

  1. Truncation is the process of stopping the flow of the physical cheque issued by a drawer at some point with the presenting bank en-route to the drawee bank branch.
  2. In its place an electronic image of the cheque is transmitted to the drawee branch by the clearing house, along with relevant information like data on the MICR band, date of presentation, presenting bank, etc.
  3. Cheque Truncation speeds up the process of collection of cheques resulting in better service to customers, reduces the scope for clearing-related frauds or loss of instruments in transit, lowers the cost of collection of cheques, and removes reconciliation-related and logistics-related problems, thus benefitting the system as a whole.

Cheque Vs Demand Draft

Cheque: Cheuqe is a negotiable instrument instructing a bank to pay a specific amount from a specific account held in the maker/depositor name with that Bank.

Demand Draft: A demand draft is an instrument used for effecting transfer of money. It is a negotiable instrument.


Difference b/w a Cheque and a demand draft

  • A cheque is issued by an individual whereas a demand draft is issued by a bank.
  • A cheque is drawn by an account holder of a bank, whereas a draft is drawn by one branch of a bank on another branch of the same bank.
  • In a cheque, the drawer and the drawee are different persons. But in a draft both the drawer and the drawee are the same bank.
  • A cheque is defined in the Negotiable Instrument Act, 1881, whereas a demand draft has not be precisely defined in the NI Act.
  • A Cheque can be dishonored for want of sufficient balance in the account. Whereas a draft cannot be dishonoured.Hence there is certainty of the payment in the case of a demand draft.
  • Payment of a cheque can be stopped by the drawer of the cheque, whereas, the payment of a draft cannot be stopped.
  • A cheque can be made payable either to a bearer or order. But a demand draft is always payable to order of a certain person.

Bancassurance: The sale of insurance and other similar products through a bank. This can help the consumer in some situations; for example, when a bank requires life insurance for those receiving a mortgage loan the consumer could purchase the insurance directly from the bank.

The bank insurance model (BIM), also sometimes known as bancassurance, is the partnership or relationship between a bank and an insurance company whereby the insurance company uses the bank sales channel in order to sell insurance products, an arrangement in which a bank and an insurance company form a partnership so that the insurance company can sell its products to the bank's client base.

Banking Ombudsman Scheme 2006

  • The Banking Ombudsman Scheme enables an expeditious and inexpensive forum to bank customers for resolution of complaints relating to certain services rendered by banks.
  • The Banking Ombudsman is a senior official appointed by the Reserve Bank of India to redress customer complaints against deficiency in certain banking services.
  • All Scheduled Commercial Banks, Regional Rural Banks and Scheduled Primary Co-operative Banks are covered under the Scheme.

Grounds of complaints: The Banking Ombudsman can receive and consider any complaint relating to the following deficiency in banking services (including internet banking):

  • non-payment or inordinate delay in the payment or collection of cheques, drafts, bills etc.;
  • failure to issue or delay in issue of drafts, pay orders or bankers’ cheques;
  • non-adherence to prescribed working hours ;
  • failure to provide or delay in providing a banking facility (other than loans and advances) promised in writing by a bank or its direct selling agents;
  • refusal to open deposit accounts without any valid reason for refusal;
  • levying of charges without adequate prior notice to the customer;
  • non-observance of Reserve Bank guidelines on engagement of recovery agents by banks; and
  • any other matter relating to the violation of the directives issued by the Reserve Bank in relation to banking or other services.

Complaints can be made when:

  • One can file a complaint before the Banking Ombudsman if the reply is not received from the bank within a period of one month after the bank concerned has received one s representation, or the bank rejects the complaint, or if the complainant is not satisfied with the reply given by the bank.
  • period of more than one year has not lapsed after receipt of bank reply.
  • the complaint is not for issues already settled/dealt with Ombudsman or for which proceedings before court, tribunal or arbitrator or any other forum is pending or a decree or Award or order has been passed.
  • the complaint is within limitation period under Indian Limitation Act 1963.

Procedure for filing the complaint: One can file a complaint with the Banking Ombudsman simply by writing on a plain paper. One can also file it online or by sending an email to the Banking Ombudsman.

Where can one lodge his/her complaint:
One may lodge his/ her complaint at the office of the Banking Ombudsman under whose jurisdiction, the bank branch complained against is situated. 

Other Important Points

  • The complainant can be filed by one s authorized representative (other than an advocate). 
  • The Banking Ombudsman does not charge any fee for filing and resolving customers’ complaints.
  • The amount, if any, to be paid by the bank to the complainant by way of compensation for any loss suffered by the complainant is limited to the amount arising directly out of the act or omission of the bank or Rs 10 lakhs, whichever is lower.
  • The Banking Ombudsman may award compensation not exceeding Rs 1 lakh to the complainant only in the case of complaints relating to credit card operations for mental agony and harassment. 
  • If a complaint is not settled by an agreement within a period of one month, the Banking Ombudsman proceeds further to pass an award. Before passing an award, the Banking Ombudsman provides reasonable opportunity to the complainant and the bank, to present their case. 
  • If one is not satisfied with the decision passed by the Banking Ombudsman, one can approach the appellate authority against the Banking Ombudsmen’s decision. Appellate Authority is vested with a Deputy Governor of the RBI.
  • If one is aggrieved by the decision, one may, within 30 days of the date of receipt of the award, appeal against the award before the appellate authority.
  • The appellate authority may, if he/ she is satisfied that the applicant had sufficient cause for not making an application for appeal within time, also allow a further period not exceeding 30 days.

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