In another notification, the Reserve Bank asked the banks in remote areas to set up a mechanism to ensure that cheques are delivered and exchanged on the same day.
"Banks, which have fixed their service charges for out- station/speed clearing for instruments valuing above Rs 1 lakh as percentage to the value of instruments are advised to review the same and fix the charges on a cost-plus basis," RBI said.
The RBI also asked the banks to update their cheque collection policy and display the revised rates on their websites.
RBI said banks were not recovering the collection charges in a fair and transparent manner on a cost-plus basis, instead they were charging on the basis of arbitrary basis as a percentage of the value.
It further said "instances of banks levying charges as an arbitrary percentage to the value of the instrument, contrary to the instructions issued in the circular have been brought to our notice".
Such practices, RBI added, were in violation of the provision of Payment and Settlement Systems Act 2007.
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It also wanted the bank to frequently use Speed Clearing mechanism for collection of out-station cheques.
As regards banking services in areas which do not have clearing houses, RBI said that the lenders should develop their own mechanism for speedy clearance of cheques.
"Banks, through mutual discussions, will put in place arrangements to ensure that the instruments drawn on the other banks are delivered/exchanged at a mutually decided place and time every working day," RBI said.
Banks should also ensure that the fate of the cheque is known on the same day and the return instruments are re-exchanged at a mutually decided place and time, RBI said.