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N.S. Vageesh

Chennai , Sept. 10

As bank customers, you might have often waited a fortnight or more to get a credit in your passbook for the outstation cheque that you might have deposited earlier. Uncomplainingly, you reconcile yourself to delays in the cheque collection process.

It might interest you and perhaps annoy you, to know that banks in India are enjoying the money that belongs to you. That amount could, at the minimum, be about Rs 600 crore per year.

A study on "Benchmarking cheque collection policies" conducted by Professor Ashish Das of the Indian Statistical Institute, New Delhi, points out that by not passing on the interest benefits due to depositors on their cheque proceeds immediately, banks enjoy a "float", leading to undue enrichment of banks at the cost of their customers. Floats are defined as the time taken to credit the depositor's account after the drawee's account has been debited.

According to Professor Ashish, there were 1.3 billion cheques of Rs 1,13,37,000 crore cleared last year. Give the benefit of doubt to banks and consider that in 50 per cent of the cheques, banks were not enjoying any float. That would mean that the banking sector, on an average, enjoyed at least one day's interest on at least Rs 56,68,500 crore. And this one-day's interest, even at a very conservative rate of interest of 4 per cent per annum, amounts to more than Rs 621 crore.

Banks could in fact be enjoying much more than that. Based on an experiment conducted as part of the study, involving the deposit of outstation cheques in 11 banks, it was found that banks enjoy a float of five days on the average. Besides, the collection period (the duration between the deposit and credit dates) is about 11 - 16 days for such cheques. As Professor Ashish notes, "this empirical study pertained only to metro cities and State capitals. The all-India picture is expected to be much worse."

Based on his enquiries, he observes that the facility of immediate credit to the depositor's account is often observed in breach thereby depriving the small depositors of their true rights. He argues that the spirit with which the RBI deregulated the cheque collection process in November 2004 has generally not got translated into policies made by banks. Competition has not been adequate to improve quality in this respect, he says. He also notes in his report, that foreign and private banks have generally framed inferior cheque collection policies than public sector banks. He says many banks don't have their cheque collection policy on their Web site.

In a severe indictment of the banking practices, he says, " a good number of cheque collection policies are poorly drafted, reflect slipshod policy statements, are unclear about their liabilities, capable of more than one meaning and have no mention of the effective date of their policy."

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