Different Types of Cheques in the Indian Banking System and Where Are They Used?

For centuries, cheques have been an important pillar of the financial system. Covered under the Negotiable Instruments Act 1881, cheques are negotiable instruments that facilitate the exchange of money between two parties. Cheques can be of different types, having diverse characteristics and features. 

In this blog, we explore the different types of cheques and their utility. Read on!

Types of Cheques in India

Below mentioned are the most common types of cheques in India –

1. Bearer Cheque

Bearer is one of the most common types of cheque. Through a bearer cheque, whoever presents it to the bank, the payment is made to the same person. This implies that any individual in possession of the cheque can claim the amount.

Such kinds of cheques are endorsable, and there is no need for the bearer to verify themselves. Most cheques fall under this category and can be easily identified through the words ‘OR ORDER’/‘OR BEARER.’ 

2. Self Cheque

If a cheque has the words’ SELF’ written in the ‘PAY’ line, it is called a self-cheque. This type of bank cheque allows individuals to withdraw money from their own accounts. 

3. Banker’s Cheque

A banker’s cheque is a cheque issued by banks wherein they debit the required amount on behalf of a customer and present the same to the recipient in the same city. The bank guarantees this transaction. And for the same reason, it is considered a secure and reliable means of fund transfer. 

4. Order Cheque

In an order cheque, the words’ OR ORDER’/‘OR BEARER’ is cancelled or struck out. Like crossed cheques, an order cheque, regardless of whoever is presenting, is issued only to the designated person. The bank may also initiate a background check on the recipient of the cheque.

5. Open Cheque

An open cheque may be considered the opposite of a crossed cheque. In this kind of cheque, the payment can be made to whoever presents the cheque. This uncrossed cheque can also be encashed at any bank. In fact, the receiver can transfer this cheque to another payee. Naturally, such transactions are less secure. 

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6. Post-dated Cheque

Cheques can be issued for a future date. Cheques that are dated for enchantment/deposit on a future date are called post-dated cheques. Commonly, these cheques are used for recurring payments, like rent etc. 

Now the crucial thing to remember is that this kind of cheque cannot be encashed or deposited before the date mentioned. Even if you present the cheque to the bank, it will be processed on the said date. 

7. Stale Cheque

Cheques come with a valid period. A stale cheque is a type of bank cheque that has not been cashed within a set time period. In India, a cheque is considered stale if it has not been encashed within 3 months. In fact, right in the centre of the cheque, you would find the statement – ‘Valid for three months from date of issue.’ Stale cheques hold no validity and will require a re-issue. 

8. Crossed Cheque / Account Payee Cheque

If you regularly deal with cheques, you must have observed two parallel lines drawn on the top left side of the cheque with the text’ a/c payee’. Some cheques may not have this text; in such cases, two parallel lines are drawn across or on the backside of the cheque. Such a cheque is referred to as a crossed cheque. 

The importance of a crossed cheque is that regardless of who’s handling the cheque, the amount is transferred only to the individual whose name is written on the cheque or the withdrawer. Also, only the payee’s bank can encash this kind of cheque, ensuring additional safety. 

9. Traveller’s Cheque

Foreigners, for convenience, carry what is known as a traveller’s cheque. This type of bank cheque is designed especially for travellers. Here, the cheque issued by the payee’s bank can be encashed at any local bank in a foreign country. This avoids the need to carry large amounts of cash when travelling abroad. Also, the unique feature of this cheque is that it comes without an expiry date. 

10. Blank Cheque

A blank cheque, as the name suggests, is a cheque that has no details filled in except the signature of the issuer. This type of cheque is issued in special cases, primarily for convenience. Blank cheques should be cautiously issued as they can easily be misused for fraud. And in case the cheque is lost, it can cause severe losses to the issuer. 

11. Mutilated Cheque

A mutilated cheque is a cheque that has been subject to damage or alteration. Damage is recorded if the cheque presented is torn or altered due to liquids and food elements. It may be difficult to encash or read a mutilated cheque and can require a re-issue. Additionally, banks may require you to re-verify and complete some other formalities in case of severe damage. 

Final Word

A cheque can be defined as a financial instrument that allows for the transfer of money from one person/ institution to the designated recipient. There are several types of cheques, like bearer cheques, blank cheques, traveller cheques, crossed cheques and more. Each cheque has its own unique features and characteristics and may be used for different purposes. Understanding the different types can help you choose the right cheque type and ensure your funds’ safety.

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