Come April 1, 2012, you will have to deposit a cheque, draft or pay order within three months of the issue date of the instrument, instead of the current six months. The Reserve Bank of India (RBI), in a notification, has highlighted the fact some people are taking undue advantage of the six-month validity by circulating them like cash for this period.

To ensure that the process is followed and customers are fully aware of the new RBI directive, banks will have to print or stamp the same on the cheque leaves and pay orders. The notification has made it clear that banks will not make payments of cheques, drafts, pay orders and bankers cheque beyond the three-month period.

Experts say this will affect many genuine customers who, at times, get cheques for dividends from asset management companies and listed firms, or maturity proceeds from insurance companies, late because of the delay in the delivery of the instrument. They say that while insurance companies have started remitting maturity and claim proceeds directly to the policyholders’ account, the same process must be implemented for paying dividends on shares and mutual funds by all companies.

For demand drafts above R20,000, banks will have to ensure that they are issued with account-payee crossing. The central bank, in its circular last week, has said that some unscrupulous elements use demand drafts without any crossing for transfer of money as an alternative to settlement through cash.

Earlier, the central bank had made it mandatory that demand drafts, mail transfers, telegraphic transfers and travellers cheques for R50,000 and above will have to be issued by banks only by debit to the customer?s account or against cheques or other instruments tendered by the purchaser and not against cash payment.

These instructions were also extended to retail sale of gold, silver and platinum.

In fact, in 2005, the finance ministry had introduced the banking cash transaction tax (BCCT) system as it found that a lot of cash was being withdrawn from banks using demand drafts and it was being used as an instrument to transact black money and payments made in cash after getting these drafts discounted.

The BCCT tax was levied at 0.1% on cash withdrawal of more than R50,000 for individuals and HUFs and R1 lakh from others in a single day from non-savings bank account.

The tax was was also applicable on single-day cash receipt exceeding R50,000 for individuals and HUFs and R1 lakh for others on encashment of term deposits, whether on maturity or otherwise.

But from April 1, 2009, BCCT was withdrawn by the then finance minister, P Chidambaram, because of the mandatory use of the Permanent Account Number (PAN) for cash transactions above R50,000 in a single day and strict know your customer (KYC) norms introduced by the RBI.

The central bank has also clarified in a separate notification to chief executives of all scheduled banks, excluding regional rural banks, that banks will have to strictly adhere to the norms of crediting account paying checks.

The ?account-payee? cheques will have to be credited to the name of the account holder only, and not to any third party. The central bank has raised concerns that these instructions are not being adhered to and to mitigate the difficulties faced by the members of cooperative credit societies in collection of account-payee cheques as they are not even sub-members of clearing houses, banks will consider collecting account-payee cheques drawn for an amount not exceeding R50,000.

The prohibition and relaxation will extend to drafts, pay orders and bankers’ cheque.

The central bank in 2006 had raised concern over the misuse of the initial public offer (IPO) process by certain individuals and entities where it was seen that banks had credited the proceeds of individual account-payee refund orders into the accounts of the brokers, instead of to the individual accounts on the request of the associates of depository participant providers.

This has resulted in manipulation of the payment system and the central bank had to take corrective step by directing banks that they should not collect account payee cheques for any person other than the payee constituent.