The Reserve Bank of India in the beginning of September 2012 has directed all banks in India to issue uniformed featured cheques which as per specifications of the Cheque Truncation System (CTS) 2010. This is with a view to standardize the procedures and provide a safeguard against frauds through uniform security features. The RBI also stated that this move would facilitate the fixed field placement specifications facilitate straight-through-processing at drawee banks’ end through the use of optical or image character recognition technology.
What is Cheque Truncation?
Cheque truncation is the process of stopping the flow of the physical cheque issued by a drawer at some point with the presenting bank en-route to the drawee bank branch. In its place an electronic image of the cheque is transmitted to the drawee branch by the clearing house, along with relevant information like data on the MICR band, date of presentation, presenting bank, etc. Cheque truncation thus obviates the need to move the physical instruments across branches, other than in exceptional circumstances for clearing purposes. This effectively eliminates the associated cost of movement of the physical cheques, reduces the time required for their collection and brings elegance to the entire activity of cheque processing.
How the Cheque Truncation System has come about to be Implemented?
The Reserve Bank has implemented CTS in the National Capital Region (NCR), New Delhi and Chennai with effect from February 1, 2008 and September 24, 2011. After migration of the entire cheque volume from MICR system to CTS, the traditional MICR-based cheque processing has been discontinued in these two locations.. Based on the advantages realised by the stakeholders and the experienced gained from the roll-out in these centres, it has been decided to operationalise CTS across the country. Accordingly, Grid based CTS clearing has since then been started in in Chennai by including a few banks from Coimbatore and Bengaluru with effect from March 2012. It has also been envisaged to bring all the bank branches in the states of Tamilnadu, Kerala, Karnataka, Andhra Pradesh and the Union Territory of Puducherry under Chennai Grid in a phased manner.
What is New about this Approach to Implementation of the Truncation System?
Under this approach the entire cheque volume in the country cleared across numerous locations will be consolidated into a much fewer number of grids. The concept of region wise grids will be replaced and operational freedom will be given to the operator in deciding the number of grids required to expand the reach of CTS Pan-India and also on choosing the locations for each grid for optimum use of the resources. Each grid will provide processing and clearing services to all the banks under its jurisdiction. Banks, branches and customers based at small / remote locations falling under the jurisdiction of a grid would be benefited, irrespective of whether there exists at present a formal arrangement for cheque clearing or otherwise.
What are the benefits of such a System to Customers?
The basic purpose of RBI introducing this system is to help the customers better by:
- Reducing the scope for clearing-related frauds or loss of instruments in transit.
- Lowering of the cost of collection of cheques.
- Removal of reconciliation-related and logistics-related problems.
- Creation of the capability to enable inter-bank and customer payments online and in near-real time.
- Superior verification and reconciliation process.
- No geographical restrictions as to jurisdiction.
- Operational efficiency for banks and customers alike.
- Reduction in operational risk and risks associated with paper clearing.
What are the Cheques that can be presented through the CTS?
All types of cheques can be presented for clearing through CTS. It is in no way different from the use of traditional clearing infrastructure which has been used for clearing paper cheques. Cheques presented as part of Speed Clearing are handled in CTS as well. Incidentally, given the fact that images of cheques (and not the physical cheques) alone need to move in CTS, it is possible for the removal of the restriction of geographical jurisdiction normally associated with the paper cheque clearing. For reaping this benefit, the concept of Grid-CTS clearing is being envisaged as part of roll-out of CTS at Chennai. Under the grid clearing, cheques drawn on centers included in the grid will be cleared as part of local clearing.
What are the Changes for the Customers?
There is no change in the clearing process for customers who can continue to use cheques as at present, except to ensure the use of image-friendly-colored-inks while writing the cheques. Of course, such of those customers, who are used to receiving the paid instruments (like government departments) would also receive the cheque images. Cheques with alterations in material fields (explained in detail later) are not allowed to be processed under the CTS environment.
The RBI has made it mandatory for all banks in India switch over to this new system by 30th September 2012 and ensure that all non-CTS-2010 standard cheques in circulation are withdrawn by 31st December 2012. This move shall usher a new era of banking with cheques in India.