Partially addressing a long-standing grievance of bank customers, the Reserve Bank of India has finally directed that local cheques should be cleared on the same day or at most early next day of their presentation.

For outstation cheques, the time for clearance should not exceed seven days for state capitals, 10 days for major cities and 14 days for other locations, the RBI said in a notification.

The RBI said that if there is any delay beyond this period, the bank should pay interest as specified in its cheque collection policies. In case the rate is not specified in the policies, the applicable rate shall be the interest rate on fixed deposits for the corresponding maturity, the RBI said.

Each bank branch is to display the cheque collection policy prominently on its premises as well as the bank's website.

The move follows an August 2008 order by the National Consumer Disputes Redressal Commission (NCDRC) under the Consumer Protection Act, which had observed that by not speedily crediting the collection amount to bank accounts, the banks enjoyed a 'free float'.

''The timeframe for collection specified by the Commission (NCDRC) shall be treated as the outer limit and credit shall be afforded if the process gets completed earlier,'' RBI said. This is a volte face from its stance four years ago, when RBI had allowed banks to frame their own clearance policies.

"Ideally, in respect of local clearing, banks shall permit usage of the shadow credit afforded to the customer accounts immediately after closure of relative return clearing and in any case withdrawal shall be allowed on the same day or maximum within an hour of commencement of business on the next working day, subject to usual safeguards," the RBI circular said.

In its order, NCDRC had said, ''The need for passing the interest benefits to payees on their cheque proceeds once the payee's bank (and not the payee's account) receives credit from the drawer bank is of significant consequence. Not passing on such interest benefits to the customers ... leads to undue enrichment of banks at the cost of their customers.''

Nearly 1.3 billion cheques are cleared annually, involving over Rs1,13,37,000 crore. NCDRC said even if one assumes that banks are not enjoying a free float for half the cheques, it still means the banking sector enriches itself (at the cost of its customers) to the tune of at least Rs56,68,500 crore in a year.

It also noted that on an average, banks enjoyed a float of four to six days on local cheques, while they took 11 and 16 days for collecting cheques for metros and state capitals, respectively. ''For other centres it would be anybody's guess what the float period could be,'' NCDRC said.