What is a Bankers’ cheque?

Case breakdown: Movie Catch me if you can:

The scene that you just saw shows how Leonardo di Caprio is taking out different amount of Cashier’s cheque from his blazer and going outside to encash them.

In India, cashier’s cheque are called the Banker’s cheque or a pay order. As the name suggests bankers’ cheque means a cheque issued by the bank itself. It is a non-negotiable instrument which is an order to pay in the same city.

Parties of a Bankers’ cheque:

For a normal cheque, for which I may write to you, there are three parties,

• the one who issues the cheque is called the drawer,
• the one who receives the pay order (PO) is called the payee and,
• the bank on which it is drawn is called the drawee.

In case of Bankers’ cheque, both the drawer and drawee is the same i.e. the bank itself unlike in the case of ordinary cheque where the drawer is the customer.

Uncertainty in Cheque Payments:

The uncertainty associated with cheque payment makes the mode unacceptable to some entities such as government departments and institutions. A bank issues a Pay order (PO) when it is certain to be paid because no bank can afford to default on lose money. Banks collect a fee for issuing PO.

Duration of Bankers’ Cheque:

Bankers’ cheque/ PO and demand draft (DD) both are valid for a 3 month period and one can’t use them after the end of 3 months. A PO is generally used for making local payments as it is payable at the place of its issue. DDs are used when payments have to be made to long distance places and the payee insists on certainty of the payment.

Endorsement:

If you watch the scene carefully, the actress asks Leonardo Di Caprio to endorse the cheque in her name. To endorse a cheque, he would have just have to write the name at the back of the cheque and sign it.

Difference between Bankers’ cheque and Demand Draft:

Watch the Youtube Video Explaining Bankers’ cheque.

Written by: Ms. Gitika Chandra