Why Banks, Employers Demand A Cancelled Cheque For PF And Loans

News18

12-05-2025

Last Updated:
While a cancelled cheque cannot be used to withdraw money, it is valuable for one key reason: it proves that the account exists and provides verified details.
In an age where digital payments dominate and UPI apps are just a tap away, an old-fashioned piece of paper continues to play a surprisingly pivotal role in the country's financial landscape – a cancelled cheque. Though it can no longer be used to pay anyone, this simple cheque marked with the word 'CANCELLED" remains indispensable in multiple official and banking processes, from salary account openings to mutual fund investments and even insurance claims.
So, what makes this inoperative cheque so important? And why do banks or financial institutions continue to demand it?
A cancelled cheque is essentially a regular bank cheque on which the word 'CANCELLED" is written across in bold letters, usually diagonally. No signature is needed. While this cheque cannot be used to withdraw money, it is valuable for one key reason: it proves that the account exists and provides verified details such as the account number, IFSC code, MICR code, branch name, and the account holder's identity.
This verification acts as a safeguard for both banks and customers, ensuring that money lands in the right account and not somewhere else due to a clerical mistake.
Where Is A Cancelled Cheque Used?
A cancelled cheque is a frequent requirement in various financial and official dealings:
Despite not involving any financial transaction, the cheque becomes a sort of trust anchor in an ecosystem increasingly vulnerable to cyber fraud and input errors.
The primary aim of requesting a cancelled cheque is to eliminate room for error during money transfers. For example, during a SIP setup, banks need to confirm the accuracy of the IFSC code and account number. A cancelled cheque, being an official bank document, confirms this data precisely.
This practice helps minimise the chances of wrong crediting – a risk that can have significant consequences, especially in the case of large transactions or long-term investments.
Even though it can't be used to withdraw funds, a cancelled cheque isn't harmless. It contains sensitive banking information, so handing it over recklessly can be risky. Here are some essential precautions:
In conclusion, the cancelled cheque might seem outdated in our digitised era, but its function is far from redundant.
Watch India Pakistan Breaking News on CNN News18. Stay updated with all the latest business news, including market trends, stock updates, tax, IPO, banking finance, real estate, savings and investments. Get in-depth analysis, expert opinions, and real-time updates—only on News18. Also Download the News18 App to stay updated!
First Published:
May 12, 2025, 18:57 IST