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RBI has restricted the time period for the validity of issued cheques from six to three months
THE decision of the Reserve Bank of India (RBI) to restrict the time period for the validity of issued cheques and demand drafts will have a major impact on the manner in which people use these instruments. There are a lot of times when the life of the cheque comes to an end, requiring the issue of another one, and hence, there has to be a lot of care that is actually taken while these are being handled.
Otherwise, the individual could find that they are holding an instrument that is suddenly worthless.
Here is a look at some of the impacts that this would have in the coming time days.
Process followed: There are a lot of occasions when people just write a date on the cheque along with the name, and the amount and the cheque is then given to the person after a period of time. At present, this does not pose a problem because of the fact that there is a long time period of six months for the validity of the cheque to remain intact.
Now, with the period being reduced to just three months, this might no longer be a good idea and there could be a situation, wherein, the cheque is nearly outdated by the time it is given to the person in whose name it is. A better route would be to write the date only when the cheque is being given to the receiver.
Importance: Earlier, there was a focus on the amount of the cheque as well as the name that was written on it. Now, the date on the cheque would also be added to this list, and this would require extra care, as there is an additional detail that needs careful attention. Earlier, as long as the amount was correct and this was in the name of the right person, there was little to worry about, but now, even the date will have to be checked before the issue of the cheque or the demand draft.
Small mistakes of writing a wrong month can prove to be a big hit, and hence, this will require an additional amount of care.
Receipts: The biggest problems could come in the process of receipts, wherein, there is a delay in several areas or places when it comes to the receipt of the cheques. This often takes place when there are bills cleared by different departments and they actually take a long time to get the cheque across to the individual. This could result in a situation, wherein, the individual will have to go and deposit the cheque in the bank as soon as they receive it, so that there is no risk of cheque actually becoming worthless by the time an individual uses it.
Implementation: The real test that is likely to come up for the individual is after the switchover to the new system occurs. This is likely to be done from the start of April 2012, and this will require some work, as the situation will change overnight. Earlier, the six month rule was in place and now, when the three month rule comes, then on the first day itself several cheques and drafts bearing the previous period dates will become invalid.
Similarly, other instruments that actually are some time away from the expiry would need to be disposed off fast, and hence, the individual will have to be really alert about the entire position. To tackle this effectively, they will need to ensure that they are ready for the changeover and have a complete list ready to tackle the entire situation.
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