Summary of this article
Lien marking reduces usable balance despite healthy account totals
ECS debits and cut-off timings often trigger unexpected cheque returns
Technical errors cause bounces even without balance issues
At face value, a cheque bounce seems simple. Insufficient funds, cheque returned, fee levied. But many account holders are shocked when a cheque is bounced despite a balance in the account that looks comfortable. Banks often classify these as technical or operational returns, and the reasons are seldom explained up front.
Here is what usually goes wrong:
Lien Marking Locks Your Money
A lien represents a legal hold that a bank institutes on part of your balance. Normally, this is the case when there is a fixed deposit linked to a loan, a credit card is overdue, or an investment requires a margin. You can still see the money in your account balance, but it is not freely usable.
So, even if your account reflects Rs 50,000, and Rs 30,000 of this is under lien, only Rs 20,000 is available to be paid out by cheques. If the cheque presented is in excess of the free balance, it will bounce even though the current balance appears adequate. Many customers remain unaware of this lien till a cheque bounces or a penalty is levied. Think of the money as carrying a "do not touch" sign.
ECS And Auto-Debits Get Priority
Electronic Clearing Service (ECS) debits and other auto-debits are normally given priority over cheques. These include loan EMIs, insurance premiums, mutual fund SIPs, and even utility bill mandates.
An ECS debit hitting early in the day reduces the available balance. If a cheque is presented later, it may bounce-even if you deposited money on the same day. Banks process auto-debits in batches. When your cheque is presented, the balance may be significantly lower than what you expect. It is timing, and not just the balance.
Cut-off Times are Important
Cheque clearing has certain strict cut-off times. Any crediting after the cut-off may not be considered for that particular day’s clearing cycle.
For example, if one deposits cash or receives a transfer in the afternoon, but the cheque is presented earlier in the clearing cycle, the system may still view an insufficient balance. To the customer's eye, the money is there. In the bank's system, it is not yet usable. That gap often leads to confusion and avoidable cheque returns.
Technical Returns Happen More Frequently Than You Think
Not all cheque bounces are about money. Technical reasons also trigger returns, each including signature mismatch, overwriting, stale cheques, mismatched amounts in words and figures, or even minor damage to the cheque.
Banks attribute these to technical returns, but the result is the same: the cheque bounces, and the fees can still be applied. Some banks do waive the charges for certain technical reasons, but most do not. To the payee, it makes little difference why it bounced. To the issuer, it means an unexpected dent in credibility.
Dormant and Restricted Accounts Can Cause Surprises
If an account has not been operated for a very long time, the bank may declare it a dormant account, or banks may place restrictions on transactions. Even if it has a healthy balance, cheque payments might be blocked until it is reactivated. Customers often think money equals access, but account status holds an equally important role.
What You Can Do To Avoid It
Account for lien-marked quantities, and not just the aggregate balance. Maintain a buffer over and above expected ECS debits. Take note of the clearing cut-off times when issuing cheques. Carefully scrutinise the details in your cheques before signing them. Most importantly, go through your account statements from time to time, and understand the way your bank processes its debits and credits.
