CB to act tough on cheque returns

The Central Bank is gearing to amend certain laws in a bid to reduce large scale cheque returns and discipline account holders in banks, but this has come under fire by certain bankers who say the main reason for this increase is the economic crisis in the country.

The regulator recently convened a meeting to discuss the reasons for the increase in cheque returns, where the National Payments Council (NPC), coming under the Central Bank pointed out that the main reason as the lack of funds in the drawer's account, according to informed sources. The NPC has said that approximately 60 percent of all cheque returns are due to this reason.

“We have not taken a firm decision yet. We need to get some decisions approved by the NPC and then direct it to the Monetary Board,” Dr. Ranee Jayamaha, Deputy Governor Central bank and Chairman NPC told The Sunday Times FT.

The Central Bank wants to amend Section 25 of the Debt Recovery (Special Provisions) Act which says that 'Any person who draws a cheque knowing that there are no funds or not sufficient funds in the bank to honour such cheque shall be guilty of an offence under this Act and shall on conviction by a Magistrate after summary trial be liable on punishment with imprisonment of either description for a term which may extend to one year or with a fine of ten thousand rupees or ten percentum of the full value of the cheque in respect of which the offence is committed, whichever is higher, or with both such fine and imprisonment'.

“The above section imposes the Prosecution, the burden of establishing the 'mental element' such as the knowledge that his account lack funds or has insufficient funds to meet the amount for which the cheque is drawn. Since it is extremely difficult to establish the knowledge component, it is suggested that this be made a 'Strict liability' offence, whereby, proof of knowledge will not be a pre-requisite (only proof of the physical element is required) to establish guilt, and the mere fact that a cheque has returned due to want of funds, will be sufficient proof to make the drawer liable,” a corporate lawyer said.

However Rienzie Wijetilleke, Chairman Hatton National Bank said the issue of cheque returns is directly connected to the much larger problem of economic difficulties the traders in particular face.

“This is an over reaction to a situation. The problem of cheque returns is directly connected to the severe economic difficulties faced by particularly the trading community. Whilst as a banker I will not condone people drawing cheques without funds, we are having many experiences of the inability by the traders to meet their commitments in a timely manner, due to delay in receipt of payments that are due to them, mainly from the state sources,” he said.

“In business today let us face that post dated cheques have become a part of business. People write post dated cheques hoping to make the depositor receive funds on the due date on the basis of what is due to them. When such payments do not come to them, they are by default in a difficulty. I strongly believe that this is not a problem that should be looked at in isolation,” he said, reiterating that if the general economic conditions in the country improve this issue will get resolved.

The bankers who had doubts came under fire from Dr. Jayamaha. “It is the bankers who are allowing the account holders to draw money without funds. Just because you need to keep the ‘relationship’ with the customers, you cannot allow the country to be taken for a ride. It is entirely the banks fault,” she said.

A senior Bank of Ceylon official also berated the regulator for not addressing this issue properly. “Central Bank is not handling the issue prudently. There is a larger picture to this problem. They need to realise that there is an economic crisis that the country is facing at present and it is their responsibility to understand that,” he said.

A senior banker said that bankers cannot be blamed for customers indulging in such practices, because it is entirely the customers’ fault. “There are many economic difficulties that business face today. There is a lot of business, especially in Pettah done on post-dated cheques, because of many reasons, such as insufficient funds, the issuer’s cheques get bounced. This is an issue that is larger than what it seems,” he said.

Amitha Gooneratne, Managing Director/CEO, Commercial Bank said that there is a concern over the increase in cheque returns. “We must discourage it. In any other country the account holders who let this happen will go to jail,” he asserted.
Zulficar Zavahir, CEO nations Trust Bank said that NTB is fairly strict with customers who issue cheques without funds in their accounts.

Among the other options to reduce cheque returns, the Central Bank is planning on insisting that banks submit details of customers whose cheques are returned due to 'want of funds' to the Credit Information Bureau (CRIB) and make the cheque return cde not re-presentable, where any cheque that is returned due to 'Refer to Drawer' cannot be re-presented as measures to minimise cheque returns.

A Credit Information Bureau (CRIB) official told The Sunday Times that under the CRIB modernisation project, the Central Bank had wanted to implement a system to acquire cheque return information from banks. “We need to wait till the amendments to the CRIB Act is passed by parliament to do this,” he said.

“They did not have nay measure to tackle this situation and since CRIB is dealing with financial institutions, they thought we were the best to implement this,” he explained.