Synopsis: Post-dated cheques (PDCs) are often taken by banks and NBFCs at the time of loan disbursal as a
backup repayment tool and legal safeguard. This article explains what PDCs are, why banks use them, how they
are handled during normal EMI repayment, and what happens if a borrower defaults, including cheque bounce
consequences, legal steps, and practical examples for home, personal, and business loans.
What Is a Post-Dated Cheque (PDC)?
A post-dated cheque is a normal bank cheque on which the date written is a future date.
For example, on 01 January 2026, a borrower may issue a cheque dated 05 February 2026. The bank is expected
to present or honour that cheque on or after the future date mentioned.
In loan accounts, banks often collect a series of post-dated cheques covering several EMIs or the full loan
tenure, especially in:
- Personal loans
- SME / business loans
- Vehicle loans
- Some housing loans (mainly NBFCs / co-operative banks)
Why Do Banks Take Post-Dated Cheques for Loans?
Even though EMIs are mostly recovered through ECS / NACH / auto-debit / standing instructions, banks still
like to keep PDCs as an additional layer of safety. The key purposes are:
- 1. Backup repayment mechanism
If ECS or auto-debit fails due to technical issues or mandate problems, the bank can try to recover the EMI
by presenting the relevant PDC in the borrower’s bank account. - 2. Legal safeguard
A cheque is a strong negotiable instrument. If it bounces due to insufficient funds, the bank gets
a legal ground to act under cheque bounce provisions (such as Section 138 of the Negotiable Instruments Act),
subject to applicable law and procedure. - 3. Proof of borrower’s commitment
Issuing PDCs shows that the borrower has:- A valid bank account
- Signed and acknowledged the EMI schedule
- Formally agreed to pay specific EMI amounts on specific dates
- 4. Useful where digital systems are weak
In certain segments (rural lending, small NBFCs, co-operative banks), PDCs are still the primary mode
of repayment tracking.
How PDCs Work During Normal Loan Repayment
In a typical loan setup, the bank may have both:
- An ECS / auto-debit mandate from the borrower, and
- A set of post-dated cheques covering several months or the full loan tenure.
Normal flow:
- On the EMI due date, the bank first tries to recover the EMI through ECS / auto-debit.
- If that fails repeatedly, or if the agreement allows, the bank may present the corresponding PDC.
- If the PDC is honoured, the EMI is considered paid.
- If the PDC bounces, it becomes a strong event of default.
🔍 Example 1 – Personal Loan with PDCs
Rahul takes a personal loan of Rs 3 lakh for 3 years. EMI is Rs 9,600 per month.
At disbursal, the bank takes:
- ECS mandate from Rahul’s salary account, and
- 36 post-dated cheques, each for Rs 9,600 with future EMI dates.
As long as Rahul’s ECS payments go through smoothly, the PDCs remain unused and lie in the bank’s record as backup.
What Happens If the Borrower Defaults?
A default generally means missing one or more EMIs, and not regularising the account despite reminders.
In such cases, banks may start using the PDCs in the following way:
Step-by-Step: How Banks Use PDCs in Case of Default
- EMI fails through ECS / auto-debit
The EMI is not recovered due to insufficient balance or other reasons. The account becomes overdue. - Bank presents the post-dated cheque
The bank presents the PDC corresponding to that EMI date in the borrower’s bank account.- If sufficient funds are available → EMI gets paid.
- If not → the cheque bounces (dishonoured).
- Cheque bounce charges & overdue status
On bounce, the borrower may face:- Cheque bounce charges by their bank
- Penalty / late payment charges by the lender
- Negative reporting to credit bureaus if default continues
- Legal notice under cheque bounce provisions
If the lender wants to proceed legally, it can:- Issue a formal demand notice to the borrower within the prescribed time after cheque bounce.
- Ask the borrower to clear dues within a set period (for example, 15 days) as per applicable law.
- If still unpaid, filing of cheque-bounce complaint
If the borrower still does not pay, the bank may file a criminal complaint under
cheque-bounce provisions (such as Section 138 of the Negotiable Instruments Act, 1881, in India),
subject to legal advice and internal policy. - Parallel civil / recovery actions
Along with or independent of PDC-based action, the bank may:- Start normal loan recovery processes
- Invoke security (e.g., hypothecation of vehicle, mortgage of property)
- Proceed under specialised recovery laws, wherever applicable
⚠️ Important
A cheque bounce can have serious consequences: legal notices, court cases, fines, and even the
possibility of imprisonment under certain conditions, as well as damaged credit scores.
This is an educational explanation and not legal advice – borrowers and lenders should consult legal
professionals for case-specific guidance.
Loan Scenarios: How PDCs Are Used in Practice
| Loan Type | PDC Usage | Default Handling with PDC |
|---|---|---|
| Home Loan |
Many banks rely mainly on ECS / NACH. Some lenders still take a few PDCs (e.g., 6–12 cheques) as backup or at restructuring time. |
If EMI stops, lender may try ECS first. If recovery fails, may use PDCs, and for persistent default, may move to legal action & SARFAESI / mortgage enforcement. |
| Personal Loan | Commonly, full set of PDCs taken at disbursal along with ECS mandate. PDCs act as an extra safeguard. |
On default, bank presents PDCs. If they bounce, bank may initiate cheque-bounce proceedings and simultaneous recovery follow-up calls and legal notices. |
| Vehicle / Business Loan | PDCs are often used to match EMI dates over the entire tenure. Helpful where income is irregular (e.g., traders). |
If EMIs bounce and PDCs also bounce, lender may proceed to repossess vehicle / enforce security and use cheque-bounce case to add legal pressure. |
💡 Example 2 – Home Loan Default with PDC
Meera takes a home loan of Rs 40 lakh. EMI: Rs 38,000 per month. Her bank collects:
- ECS mandate from her salary account, and
- 12 PDCs as backup, each for Rs 38,000.
After a few months, Meera loses her job and misses two EMIs.
The ECS fails, and the bank:
- First calls and emails Meera for payment.
- Then presents the PDC for one EMI – it bounces due to insufficient funds.
- Bank charges bounce fee, reports overdue status, and may issue a legal notice based on cheque bounce.
- If the default continues, the bank can start enforcing the mortgage on the property as per law.
Rights & Responsibilities: Borrower vs Bank
For borrowers:
- Never issue PDCs without understanding the EMI amount and tenure.
- Ensure sufficient balance in the account on due dates to avoid cheque bounce.
- If facing genuine difficulty, communicate early with the bank for restructuring or relief options.
- Understand that cheque bounce can affect credit score, legal position, and future loan eligibility.
For banks and lenders:
- Use PDCs transparently as per loan agreement and internal policy.
- Follow prescribed timelines for notices and legal actions.
- Maintain proper records of PDCs, bounce memos, and communication with borrowers.
📌 Key Takeaway
Post-dated cheques in loan accounts are not just pieces of paper. They act as a backup repayment tool,
a legal safeguard, and a strong deterrent against willful default. When EMIs are paid on time,
PDCs quietly sit in the bank’s records. But if a default happens and cheques bounce, they can trigger
penalties, legal notices, and court cases. The best protection for any borrower is simple:
borrow responsibly, track your EMI dates, and repay on time.
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