Positive Pay System

Context:

The banks have been informing their customers that the Positive pay system has been made compulsory for high value cheques.

Background

Implementation of the Positive Pay System was compulsorily mandated by the Reserve Bank of India from January 2021.

What is the Positive Pay System?

The Positive Pay System, developed by the National Payments Corporation of India, is a process of reconfirming the key details of large value cheques. Under this system, a person issuing the high-value cheque submits certain essential details of that cheque like date, name of the beneficiary/payee amount etc. to the drawee bank. The details can be submitted through electronic means such sas SMS, mobile app, internet banking, ATM etc. The details are cross-checked while issuing the cheque and any discrepancy is flagged.

What is the limit on the amount for the system?

RBI has told banks to enable the facility for all account holders issuing cheques for amounts of ₹50,000 and above. It has also said that while availing of the facility is at the discretion of the account holder, banks may consider making it mandatory in case of cheque values of ₹5 lakh and above.

Benefits of the system

• Under the Positive Pay system, the drawee bank is already aware of the issuer the details of the high-value cheque (above ₹50,000) he has issued.
• Without this intimation, if a cheque gets presented, then the drawee bank can reject payment and examine the case. Positive Pay is going to benefit both the issuer and the beneficiary.
• For the issuer, the benefit from this concept is that there cannot be fraudulent cheques encashed out of issuer’s account.
• For the beneficiary, the benefit is that the cheques handed out to him will mostly get honoured.

Is Positive Pay the same as ‘certified cheque’?

• The concept of ‘certified cheque’ was there long back — about 30 years back, long before technology swept across the Indian banking landscape.
• Whenever anybody issued a cheque, banks used to certify that money is there in their customer’s bank account and, therefore, the cheque will get honoured.
• This provided comfort to a beneficiary that cheque payment will get honoured and therefore did not insist on a pay order or demand draft.
• Drawee banks used to earmark the amount in the account of the issuer and then certify the cheque.
• This was adopted in an era when the cheque instrument used to travel physically for clearing.

Why need such a system?

• The RBI says the Positive Pay system is to augment customer safety in cheque payments and reduce instances of fraud occurring on account of tampering of cheque leaves.
• Banks had recently witnessed a rise in frauds involving high-value cheques.

Cheque Truncation System (CTS)?

• It is the process of stopping the flow of the physical cheque issued by a drawer at some point by the presenting bank en-route to the paying bank branch.
• Under this process, an electronic image of the cheque is transmitted to the paying branch through the clearinghouse, along with relevant information like data on the MICR band, date of presentation, presenting bank, etc. 
• It is a system which is practiced worldwide in the banking sector and also undertaken by the Reserve Bank of India (RBI) 

Source: Indian Express

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