The Era of Truncated Cheques



India amended the age-old Negotiable Instruments Act 1881 with a Negotiable Instruments Amendment Act 2002 (NIAA) which became effective from February 6, 2003. Since then the undersigned has had several discussions with leading Software Companies in India about the need to develop a suitable software package.

Infosys, Polaris, I-Flex, Laser Soft , HCL, TVS-E, TCS and Cognizant have been amongst the top companies which the undersigned had at various times contacted during the last two years to understand their preparedness to enter the Truncated Cheque market. However, none of the software companies appreciated the enormity of the business potential. Many of these IT  Companies also appeared as not having a suitable organizational structure to act on the emerging marketing opportunities, conduct a market survey if required and arrive at a reasoned marketing decision.

Some of the Companies had declared themselves that they were not "Product Companies" and would undertake only projects based on some client orders.

Thus the business opportunities presented by NIAA went unexploited over the last two years.

Now the RBI has made a statement that they would like to introduce the system of Truncated cheques from January 2005. A news report in ET (Cheque truncation Indian IT's new goldmine) which predicted a  Rs 25,000 crores opportunity in Truncated cheques has suddenly become a talking point. It is stated in the report that Infosys and Newgen are amongst the companies scrambling for the market.

 Some of the IT Companies may still think that Truncated Cheque is a business with RBI, a Government agency and prefer to avoid such opportunities for obvious procedural difficulties.

For the benefit of such Companies  it is time to point out that the US law on Truncated cheques has become effective from October 28, 2004. It is difficult not to regret that if these companies had acted on the suggestions made earlier and started work on the Truncated Cheque Management  an year back, they would have been able to respond to the introduction of Truncated Cheques in US  through the "21st Century Act". (Also called "Check 21 Act")

The NIAA had provided for two types of Electronic Cheques namely the Truncated Cheques to replace the clearing of cheques at the inter bank level and the Cheques in Electronic form for customer's usage. With the introduction of the RTGS scheme over the last few months, the back-end electronic inter-bank fund transfer system is already in place. Hence the time is ripe for the introduction of truncated cheques all over India.

The US system has many similarities to the Indian system excepting for the concept of "Substituted Cheque" which is not in India. It also has several consumer protection oriented regulations.

The Indian law also appears to be strong on the other legal aspects of defining the presentation of truncated cheques and the protection for the collecting and paying bankers.

It is time that the IT Companies start appreciating the business potential arising out of the changes in the legal environment  and be alert to opportunities. Otherwise several  opportunities will be lost.

Hopefully the advent of the Truncated Cheque Era will remove the marketing complacency of the Indian IT Companies and enable them to harness new opportunities that arise out of the Cyber Law Regime.


November 2, 2004

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