The art and science of PDC management

Over the last decade or so, new payment systems have evolved like IMPS, NEFT and RTGS for a one time payment. For recurring payments we have the NACH which replaced the ECS (Electronic Clearing System).

NACH or National Automated Clearing House allows a Financial Institution to register a mandate to deduct recurring amounts from a customer's bank account towards repayment of a loan. 

Inspite of the emergence of new age methods of repayment PDC'S continue to be a favorite mode among customers in rural areas for repaying a loan. The challenge with physical cheques is in identifying and picking their up for deposit on the EMI due date. Generating the deposit batch location wise and then flagging the cleared cheques and those that have bounced.

However in certain geographies where banks do not have access to NACH, PDC's continue to be the most preferred form of repayment. The customer is asked to submit signed cheques for atleast twelve months for an amount equial to the EMI of the loan. The Financial Institution sends these cheques for safe keeping in a vault.

The PDC application is designed to accept cheques against a loan number when the customer submits the PDC's for EMI repayment and the security cheques. On receipt of cheques at the vault, executives update the location where these cheques are kept. That is the vault, rack and bin identification is specified against the cheques that are received. 

When cheques are accepted at the branch the customer usually writes the dates on the cheques. In the normal course as the cheque sequence increases the date advances to the next repayment date. Sometimes when the customer tears out cheque leaves and places aside, they end up writing the first replayment date on the last cheque number. Loan Management Applications are designed to generate the cheque numbers in forward or reverse sequence to handle it.

During the beginning of every month a few days before the repayment due date the vault executives run a process on the Loan Managemenbt System that tells them the Cheques that are to be retrieved for banking. The process is designed to determine the cheques from the repayment date of the loan, the bank and branch. A seperate Pay-In slip is generated for each lost depending on the criteria. For example a Pay-In slip is generated for all local cheques of Karur Vysya Bank and another Pay-In slip for all oustation cheques of Karur Vysya Bank. Similarly a Pay-In slip is generated fo all other Banks. ON deposit all cheques are flagged as "cleared". Once the clearing information is received from the Bank where the cheques were deposited the bounched cheques are flagged and any credit to customer accounts are reversed.

Some customers especially might request the bank to swap the PDC's. The PDC application are equipped with a feature to "Swap Out" the old PDC's and "Swap In" new PDC's against a loan. Some banks and Financial Institution charge a small fee for this. This swap out and swap in can also happen

1. Whenever a customer reschedules the loan facility that increases or decreases the repayment amount
2. Customer obtains a top-up loan and opts to pay with a single cheque
3. The customer those whose jobs involve frequent transfers like employees of Public Sector Enterprises, Government Employees etc has changed his primary bank

Once the loan contract hs been fully paid up the remaining repayment cheques and security cheques have to be fetched from the vault and returned to the customer. The PDC applications are designed to handle this as well. In addition to handling instruments the PDC module also handles other kind of repayment's like ECS, SI, NACH etc. The PDC application can generate separate hand off reports for each of this repayment mechanisms.