Introduction

In international banking, the collection of foreign currency cheques involves multiple jurisdictions, correspondent relationships, and operational risks. One of the most critical operational controls in this process is the “cooling period” — the waiting interval a bank observes after receiving provisional credit in its Nostro account before releasing funds to the customer. This period mitigates the risk of cheque returns or chargebacks under foreign legal frameworks.

Nature of Foreign Currency Cheques

A foreign currency cheque is a negotiable instrument drawn or payable in a currency other than the Indian Rupee, such as the US Dollar (USD), Euro (EUR), Pound Sterling (GBP), or Japanese Yen (JPY). These cheques may include personal cheques, cashier’s cheques, traveller’s cheques, or demand drafts, typically payable on banks located outside India.

Definition and Concept of the Cooling Period

The cooling period refers to the time between the date of provisional credit received in a bank’s Nostro account and the date funds are released to the customer. This interval allows banks to safeguard against possible returns or dishonours under drawee country laws.

The duration of the cooling period varies depending on factors such as:

• Currency and drawee location
• Mode of collection (Cash Letter, Direct Collection, or Secured Collection)
• Correspondent banking arrangements
• Risk profile of the transaction

Generally, the cooling period ranges from 5–8 international working days for low-risk corridors to around 21 calendar or working days or longer for other geographies.

Collection Mechanisms and Operational Flow

Foreign currency cheques are transmitted abroad for realization. The collecting bank sends the instrument to its correspondent bank in the country where the cheque is payable. The correspondent bank, after presenting the cheque to the drawee bank, credits the proceeds provisionally to the collecting bank’s Nostro account on a predetermined value date. This process—where provisional credit is received through a correspondent—is known as a Cash Letter Arrangement (CLA).

Key Operational Definitions

• Nostro Account: An account maintained by a domestic bank in a foreign bank, denominated in that country’s currency, for international settlements.

• Correspondent Bank: The foreign bank maintaining the Nostro account and facilitating settlement or collection services on behalf of the domestic bank.

Modes of Collection

1. Cash Letter Arrangement (CLA): The correspondent bank grants provisional credit to the collecting bank’s Nostro account. The collecting bank applies a cooling period before crediting the customer’s account.

2. Direct Collection: The cheque is sent directly to the drawee bank for payment. Customer credit is given only upon final realization, and the process can take 30–40 international working days or longer.

3. Secured or Final Credit Collection: Under this premium service, the correspondent provides final and guaranteed credit to the Nostro account, removing return risk. The collecting bank can credit the customer’s account immediately, though the service involves higher charges.

Indicative Cooling Periods by Currency and Jurisdiction

Currency / Location	Typical Cooling Period (from Nostro Value Date)
USD (New York)	Approximately 5 international working days
USD (Outside New York)	Approximately 15 international working days
GBP	Approximately 14 international working days
EUR	Approximately 15 international working days
AUD / CAD	Approximately 10–11 international working days

Value Date, Due Date, and Exchange Rate Application

• Value Date: The date on which provisional credit is received in the bank’s Nostro account.

• Due Date: The date when the cooling period expires and funds are credited to the customer’s account.

Banks generally apply the prevailing card rate on the customer credit date, not on the date of deposit or Nostro value date, unless specified otherwise.

Interest, Customer Compensation, and Protection

Most banks’ foreign cheque collection policies align with customer protection norms by:

• Paying savings interest for delays beyond prescribed timeframes
• Offering term deposit interest for extended delays
• Paying interest from the date of sighting Nostro credit until the customer credit date in some cases

Risk Controls, Exceptions, and Waivers

• Waiver Requests: For small-value instruments, customers may request waiver of the cooling period, subject to approval.
• Immediate Credit or Purchase: Banks may advance funds against FCY cheques under limits or margin conditions, assuming the risk of return.
• International Working Days: Exclude weekends and holidays in key financial centres such as New York, London, and Mumbai.

Reasons for Delay in Realization

Delays in crediting proceeds—typically spanning 15–30 days and sometimes up to 45 days—occur primarily due to:

1. The collection policy and routing adopted by the collecting bank.
2. The mandatory cooling period observed after receiving provisional Nostro credit.

Regulatory and Legal Framework

The collection of foreign currency cheques follows the ICC Uniform Rules for Collections (URC 522) and local laws of the drawee country. The cooling period operationalizes legal return windows into customer timelines under correspondent arrangements. In India, banks’ public FAQs and foreign cheque policies clarify that the cooling period is essential to cover the risk of returns under foreign laws, while Secured Collection services can reduce or eliminate this waiting period at additional cost.

Practical Guidance for Customers

• Prefer cheques drawn on New York for USD transactions for faster realization.
• For large or time-sensitive payments, consider Secured Collection or wire transfers instead of physical cheques.
• Check the bank’s current cooling period schedule for the relevant currency and drawee location before depositing foreign cheques.

Conclusion

The cooling period in foreign cheque collection represents a balance between operational prudence and customer convenience. By adhering to international norms and risk management standards, banks ensure transactional security and regulatory compliance. For customers, understanding the nuances of cooling periods and collection modes is essential for efficient management of cross-border receipts.