RBI asks banks to collect loan EMIs through electronic transfers

The Reserve Bank of India (RBI) has instructed lending banks to ensure that they collect monthly installment repayments of home and auto loans through electronic mode rather than post-dated cheques.

RBI said borrowers of home and auto loans need not pay post-dated cheques towards EMIs wherever the facility for electronic fund transfers is available.

RBI has advised all lending banks against accepting any fresh post-dated cheques (PDC) or equated monthly installment (EMI) cheques in locations where the facility of ECS/RECS (debit) is available and convert existing cheques in such locations into ECS / RECS (debit) by obtaining fresh mandates.

RBI said it has been forced to issue fresh instructions following instances of banks obtaining fresh cheques (both CTS-2010 and non CTS-2010 standard) in locations where the facility of ECS / RECS are available.

RBI said section 25 of the Payment and Settlement Systems Act, 2007 accords the same rights and remedies to the payee (beneficiary) against dishonor of electronic funds transfer instructions under insufficiency of funds as are available under section 138 of the Negotiable Instruments Act, 1881.

Considering the protection available, there is no need for banks to take additional cheques, if any, from customers in addition to ECS (debit) mandates, RBI said.

The move is aimed at reducing usage of cheques and promoting electronic transfer. It will also save borrowers the efforts of going to branch for collection of cheque books.