Decriminalising cheque bounce will deteriorate payment schedules

The government’s proposal to decriminalise the bouncing of the cheques will have raised concerns among bankers and customers on multiple fronts.

Three top bankers -- two from PSU Banks and one from a private bank, who spoke to DH on condition of anonymity, fear that it may make the lending business much more riskier.

“Bouncing of post-dated equated monthly instalment (EMI) cheques can increase and non-collateralised loans become riskier,” a private banking official said.

This will impact the quality of the credit at a time when banks are already staring at about Rs 5 lakh crore in fresh slippage.

It is also bad from a beneficiary point, be it an individual, organisation or even a bank. “With decriminalisation, the pressure on the drawer or cheque writer to honour dated and post-dated cheque gets diluted,” another banker said.

And a payee, with small amounts, will end up paying huge legal fees to recover defaults, the banking sources anticipate.

“Banks are expecting that people will stop accepting cheques and insist on upfront payments,” one of the bankers said.

However, since the banks will process less physical instruments and save money, on the brighter side.

On Tuesday, the Finance Minister proposed decriminalisation of several economic offences, including the offence of dishonour of cheque under section 138 of the negotiable instruments act, and has invited comments from all stakeholders on this.

As per the Centre, this move is aimed at speeding up the economic revival process and encourage businesses.

The Department of Financial Services has sought public comments on decriminalising 39 sections in 19 acts under its administrative purview including the Banking Regulation Act, the Reserve Bank of India (RBI) Act, the Insurance Act, the department said.