4 Types of Cheque Clearances – Local, Outstation, HVC, Same Branch

Cheque Clearance in India

Imagine a scenario wherein your home loan EMI (INR 20,000) date is after 2 days and you pay it via cheque. However you have insufficient funds in the account and are worried. Because cheque bounce means a penalty. So you ask your friend living in another city for monetary help and request him to deposit money in your account via cheque today; since he does not use online banking facility. So your friend who holds the account in the same bank as yours deposits the cheque within an hour.

Check out: Impact of cheque bounce on credit history

But will the money get credited into your account the same day?

How long does a cheque take to deposit?

The time taken in processing the cheque depends on the type of clearance i.e. –

  1. Local Clearing
  2. Outstation Clearing
  3. Same Branch Transfer
  4. High Value Clearing

Let’s look at these 4 types in detail

(1) Local Clearing

This happens when you deposit a cheque in the bank branch of the same city. It means there is a bank account in the same city.

The process for the local cheque is as follows: 

Day 1: Depositor puts local cheque in your bank account.

Day 2: Your bank sends it to the clearing house of the Reserve Bank of India. A clearing house is an association of banks in which cheques of various banks of a city are cleared. In the clearing house, banks collect cheques, which are drawn from any of their branches. The headquarters of these banks send cheques to the concerned branches for clearing. It is also called the inward clearing cheque.

Day 3: Money comes into your account. If the bank money from the customer’s account is not successful in transferring it to your account (for any reason), the cheque then comes to the same bank which presented the cheque. (This is the bank in which you have an account.)

The cheque deposited in your account gets credited in 2-3 days.

(2) Outstation Clearing

It is clear from the name that you deposit a cheque which is from the bank branch of another city. There is only one difference compared to local clearance i.e it takes more time for the money to come into your account. The reason is that the physical cheque takes some time to move from one city to another. “Outstation” refers to any location or city that is different from the city where the bank on which the cheque is drawn is located. For example, if you have an account with a bank in Mumbai and you issue a cheque from that account to someone in Delhi, that cheque is considered an outstation cheque in Delhi.

Clearing Process: Outstation cheques require a clearing process that involves physically moving the cheque from the presenting bank to the drawee bank where the account is held. This process may take longer compared to local cheques, which can be cleared more quickly. Processing outstation cheques may incur additional fees compared to local cheques. The higher fees are due to the extra effort and time required for clearance.

Verification: When processing outstation cheques, banks have stricter verification procedures compared to local cheques. They carefully check the signature, verify the availability of funds, and ensure that the cheque is not post-dated or stale.

Stale cheques: Outstation cheques that have not been encashed or deposited within a specified period (usually three months), may not be honored by banks. It is important to cash or deposit the cheque within its validity period to avoid any issues.

With the rise of technology and electronic systems like NECS and RTGS, electronic fund transfers have become popular for intercity and interbank transactions. These methods are faster and more efficient than traditional outstation cheque clearing. However, outstation cheques are still utilized in situations where physical cheques are preferred or required.

Generally, outstation clearing takes 7-10 days. It depends on where the bank branch is.

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(3) Transfer to same branch

It takes the shortest time. On the same day, money gets credited in your account.

(4) High Value Clearing

High-Value Clearing Cheques, also known as High-Value Clearing Instruments (HVCI), are checks used for large financial transactions. They are commonly used for significant payments in business, property transactions, and other high-value transactions. Banks may impose significant fees for processing high-value clearing cheques, which vary based on their policies. These charges are meant to compensate for the extra effort and risk involved in handling large transactions.

A cheque amounting to INR 1 lakh or more is called high-sum. Your local cheque in high value clearing (HVC) gets cleared on the same day. The money comes to your account the next morning.

For this, you should deposit the money before the cut-off time in the morning.

Important Note –

(1) Check your bank’s cheque collection policy. According to the Reserve Bank of India, all banks have to adhere to this policy. It should be seen by the customers what is the time required for the money to come into their account.

(2) Check outstation clearing and HVC charges applied by your bank. In case of outstation cheque, banks charge INR 15 to 500. It is levied according to the amount and location of the cheque. The Reserve Bank has given a proposal to cut these duties to benefit the customers. As far as HVC is concerned, the fee is between INR 20 to 50.


Nikesh-Mehta-AllOnMoney

Hi, I am Nikesh Mehta, owner and writer of this site. I’m an analytics professional and also love writing on finance and related industry. I’ve done online course in Financial Markets and Investment Strategy from Indian School of Business. I can be reached at [email protected].


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