Types of Cheques in the Indian Banking System and Where Are They Used?

8 min read • Published 25 February 2023
Written by Anuj Agarwal

Cheques are an important part of the Indian banking system and serve as a convenient way to transfer money between individuals and businesses. In this blog post, we will discuss the various types of cheques available in the Indian banking system and how to use them. We will also provide useful tips on when and how to use cheques safely. By the end of this post, you should better understand the different types of cheques available in India and how to use them correctly.

What is a Cheque?

You can instruct a bank to move funds from one account to another by writing a cheque. The drawer (the individual writing the check and having access to the bank account), the drawee (the bank), and the payee (the person to whom the money is being sent) are the three persons involved in the management of a cheque.

Relevance Of Using Cheques

The points below will explain why people still use cheques today:

  • Cheques are still a popular and widely used form of payment in India due to the convenience they offer. They provide a secure way to transfer money from one person to another without carrying cash around.
  • Cheques also make tracking and documenting transactions easy, making them useful for accounting and auditing purposes. Additionally, they can be used to pay taxes and utility bills and make other payments. Cheques are a great way to send and receive money without visiting a bank.
  • Cheques are a reliable form of payment since there is no chance of someone being able to use the cheque fraudulently. Additionally, the issuing bank ensures that the recipient receives the exact amount mentioned on the cheque.
  • Furthermore, the sender has the assurance that the money will be credited to the recipient’s account only after all the necessary verifications have been done by the bank.
  • Finally, cheques are especially helpful for those who live in remote areas or do not have access to banking facilities. Sending and receiving cheques is convenient and cost-effective compared to other payment modes like electronic transfers or money orders. This makes cheques a popular and dependable mode of payment for many people in India.

Must-Have Things In a Cheque

  • A cheque must have a date on it.
  • The money amount needs to be stated both numerically and verbally.
  • The person from whose account the money will be debited must sign the cheque. 
  • A cheque must be made payable to a particular bank.
  • The recipient’s name must be written on the cheque to cash it.

Parties Involved In a Cheque

With a cheque, three people are involved.

  • Maker Or Drawer 

The person who issues the cheque, such as a customer or account holder, is known as the drawer.

  • Drawee

The drawee is the bank or financial institution that the cheque is drawn on, which must pay the amount of the cheque when it is presented for payment. The drawee is usually indicated on the face of the cheque by its name and address.

  • Payee 

This is the individual whose name appears on the cheque and who receives payment in the amount specified therein. The drawer and payee may, in some circumstances (such as when the drawer makes a self-cheque), be the same person.

In addition to these three, two different parties are also associated with a cheque:

  • Endorser

A party, or payee, is referred to as an endorser when he or she grants another party the right to receive the money.

  • Endorsee

The recipient of the right is referred to as the endorsee.

Types Of Cheques Existing In the Indian Banking System 

Cheques can be used for various transactions, and there are several distinct kinds of bank cheques. Here’s a rundown:

Bearer Cheques

  • In the case of a bearer cheque, the payee or the bearer himself can deliver the document to the bank for payment.
  • The payee’s identity need not be confirmed to cash a bearer’s cheque.
  • A bearer cheque is a negotiable document that can be sent or delivered to another person.

Order Cheques

  • Order cheques can only be cashed by the person to whom they are supposed to be paid.
  • On order cheques, the term “bearer” is omitted.
  • Banks will only cash order checks if the customer’s identity has been confirmed.

Crossed Cheques

  • To identify a crossed cheque, two parallel lines are drawn across the top left corner.
  • Because of these lines, the cheque can only be cashed by the intended recipient.
  • A crossed cheque can only be cashed at the intended recipient’s bank, reducing the likelihood of the cheque’s funds falling into the wrong hands.

Open Cheques

  • In contrast to crossed checks, which are payable to the drawee, uncrossed or open checks are made out to the individual presenting the cheque (the bank or other financial institution on which the cheque is drawn).
  • With an open check, the original drawee can designate a new drawee by putting the new drawee’s name on the back of the check.
  • Cheques left open should not have the term “open” crossed out, and the drawer should sign both the front and back. Banks can refuse to honour a check if it does not meet these conditions.
  • Once an open check’s funds have been received, the payee must sign the reverse of the cheque to acknowledge receipt.

Blank Cheques

  • A blank cheque is a type of check with no information in any fields save for the drawer’s signature.
  • The cheque’s amount is blank for the drawee’s use.
  • The use of a blank cheque typically shows trust between parties.

Post-Dated Cheques

  • A post-dated cheque is a cheque that is dated in the future rather than the present.
  • Until the expiration date is reached, the cheque’s corresponding money will not be released to the beneficiary.
  • After three months after the cheque was written, it will no longer be considered legitimate.

Banker’s Cheques

  • Banks issue customers banker’s cheques in their names.
  • The bank gives instructions to transfer funds to an individual or business in the same city.
  • Banker’s cheques are pre-printed and cannot be altered after issuing them.
  • These cheques are good for three months after they were issued, although they may be extended under specific conditions.

Gift Cheques

  • Rather than handing over cash, you can give someone a gift cheque for a predetermined amount.
  • Typically, a gift cheque will come in a fancy design.
  • No restrictions apply to the number of gift cheques that can be bought.

Traveller’s Cheques

  • If you need to send funds from one place to another, you can use a bank-issued traveller’s cheque.
  • These cheques can be used in a wide range of venues.

Stale Cheques

  • For obvious reasons, a stale cheque has passed its expiration date and cannot be cashed.
  • In most cases, a cheque’s funds will expire if they aren’t cashed within three months of the date it was issued.

Mutilated Cheques

  • Mutilated cheques are those that have been physically altered by being torn or otherwise destroyed.
  • Most banks will not pay out a damaged check without the drawer’s authorization.
  • There is still a chance that the bank will be able to cash a cheque as long as it is not significantly damaged and no essential information is missing.

Self Cheques

  • Personal cheques written by the drawer are known as “self-cheques.”
  • This type of cheque is written when the drawer has to withdraw from his or her bank account.
  • Self-cheques should be treated with caution because they can be cashed by anyone possessing them. To put it bluntly, this could lead to the drawer’s bank account being hacked.

Conclusion

That’s all there is to know about the different kinds of cheques you can send and receive. Banks print both cashier’s cheques and certified cheques. In contrast to the norm, certain internet banks may provide cashier’s cheques over the phone or online. To ensure that the amount is still available whenever the cheque is cashed or deposited, the teller will earmark the amount on a certified cheque.

Frequently Asked Questions

How long does it take for a cheque to be cleared?

The typical time it takes for a cheque to clear is two business days.

Can I cash my cheque at any bank branch?

Yes, you can get your cheque cashed at the branch it belongs to.

Can I reissue my dishonoured cheque?

If a cheque is dishonoured, it can be reissued if the payment details are corrected and the recipient is willing to accept it again. However, this should be done with caution as the issuing bank may charge additional fees for issuing a new cheque.

What does it signify when a cheque bounces?

A bounced cheque is one that the bank has refused to honour because the drawer did not maintain sufficient funds in the account to have the cheque honoured.

Can I get my wet cheque to get encashed?

Yes. If your wet cheque is in good condition, you can use it to get it cashed. If the information listed on the cheque is clear, accurate, and comprehensive, then it should not be an issue to encash the wet cheque.

Was this helpful?

Anuj Agarwal

Investment Principal
Anuj is an investment professional with a demonstrated history of working in Debt Capital Markets. He has completed his B.Com (Hons) in St. Xavier’s College, Kolkata and holds PGDM (Finance) degree from GIM. He is currently working as Investments Principal at Wint Wealth. He has been working in the debt capital market space for the past 4+ years and is also an NISM certified mutual fund expert.

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