Will Cheques Soon Check-Out Of The Indian Payment System?

At a time when digital payment options are exploding, cash is holding on to its own but cheques are slowly dying out.

Payments made by cheques made up barely 3 percent of total value of payments as of the end of the June 2018 quarter, showed data collated by BloombergQuint from information available with the Reserve Bank of India. The share of cheque payments has been steadily declining with each passing year, reducing from about 14 percent in 2010 to 3 percent now, shows the data. To calculate the contribution of cheques to total payments, BloombergQuint took the average over a 12-month period.

“The decline in cheque use is a worldwide trend and India is not an exception,” said AP Hota, former chief of the National Payments Corporation of India. “The rise of electronic payments for efficiency and security is changing the way payments are made,” he added.

India’s payment landscape has changed dramatically over the last few years with both business and retail payments moving online. For large value payments, the RTGS (real time gross settlement) system is the center-point. In August, RTGS payments crossed the Rs 100 lakh crore for the first time.

NEFT (National Electronics Funds Transfer) and IMPS (Immediate Payment Service) are other popular digital options for large transactions. At the retail end, the options range from wallets to bank payment apps, among others.

In comparison to these digital options, transactions via cheques take more time and effort. They also cost banks more.

Another reason for the decline in cheque usage are the alternatives now available for loan installments.

“Loan installments was a big use case for cheques which has now been taken over by ECS (Electronic Clearance Service) and NACH (National Automated Clearing House),” said Surinder Chawla, head of geography, branch and business banking at RBL Bank Ltd.

Down But Not Out

To be sure, cheques are unlikely to die out completely.

In a speech on May 30, RBI Deputy Governor BP Kanungo had highlighted that India still processes over 90 million cheques per month. This is important as cheques are also non-cash transactions and are often not given due importance, Kanungo had said. The value of payments via cheques has roughly averaged about Rs 7 lakh crore a month in recent months.

Virat Diwanji, who heads retail liabilities and branch banking at Kotak Mahindra Bank Ltd., said that a number of small and medium businesses and traders still prefer to use cheques. Cheques give a leeway of a day or two, longer if issuing a post dated cheque, enabling the issuer to arrange for funds, said Diwanji. He added that those who are not comfortable with technology also prefer cheques and see them as a secure means of payment.

There are legal advantages to using cheques too. Recently, the government amended the Negotiable Instruments Act, allowing for interim payment in cases of bounced cheques.

Even so, the relevance of cheques in the overall system would continue to decline, said Chawla.

While the use of cheques may continue to decline, they will likely to remain an option.

Late last year, the government quashed rumors that it would withdraw cheque facilities in order to push digital payments. “The Government of India has reaffirmed that there is no proposal under consideration to withdraw the bank Cheque Book facility,” the finance ministry had said in a tweet back then.