Cheque Truncation System (CTS) – A new milestone in Indian Banking System

Cheque Truncation System is considered to be major milestone in the history of Indian banking system. CTS aim to make cheque clearance more efficient while reducing the clearance time of cheques to one day thus trimming down the floating time considerably.

It is reported that in India, around 1.2 billion cheques are processed annually. Thus implementation of CTS comes to be a major achievement which would drastically cut down the waiting period involved. CTS system is supposed to be implemented across pan-India w.e.f January 2013.

How does CTS work

CTS is an online image-based cheque clearing system. The collecting bank branch would deploy scanned images along with the magnetic ink character (MICR) of the cheque which will be sent out electronically using their Capture System, removing the need for physical/manual transfer of cheques. The captured images and the data is then signed and encrypted and sent to the Clearing House or the central processing location and thereafter forwarded to the drawee or paying bank. This will help speeding up the cheque collection process that eventually providing better and faster customer service.

Key Features of Cheque Truncation System

• User friendly GUI
• Automated coding and endorsing of cheques
• Encryption of data file before transmission to the clearing house or the service branch
• Employs a unique transaction follower process to confirm the status of cheque
• Improved and efficient settlement and prevention of fraud
• Equipped with enhanced archival procedure that stores images and data facilitating report generation along with future enquiry.
• Alerts RMs in case of return of cheque due to insufficient funds

Impact of CTS on Customers

Handling of EMIs with the Introduction of CTS

• In cases where customers have issues post-dated cheques (PDC) for payment of monthly instalments towards an ongoing loan, they would need to issue fresh cheques to the bank or service provider as per the new directive on CTS by the RBI
• The replacement of these cheques needs to be done latest by December 31, 2012 and is applicable on all banks and NBFCs

Encashment of Old Cheques

• Old cheque in custody of any individual needs to be en-cashed before December 31, 2012
• According to RBI the payment of such cheques will be honoured only till then, post which the banks need to issue the new types of CTS-compliant cheque books with the prescribed features to all their customers latest by December 31, 2012
• Customers may need to surrender their old cheque books or cancel them and show proof of cancellation
• No replacement fee will be charged by the bank for issuing new cheque books
• Apart from these aspects, the system does not, in any way, affect the way things function for a customer. They would continue using cheques as they do currently; however, cheques that have been altered or modified will not be permissible under the new system.

The other precautions that need to be taken while issuing or writing a cheque are:

• Ensure that all details are clear and readable, using black or blue ink
• Write the name of the payee, amount and the date and sign the cheque correctly
• While using seals on the cheque, it should be ensured that they are imprinted properly and do not mask or hide the other important fields of the cheque

Benefits of CTS for Customers

• Clearance cycle gets shortened – Due to CTS the physical or manual movement of cheques for clearance has ceased. With cheques being transmitted electronically, the settlement process becomes quicker, facilitating reduction in the clearance cycle
• The fear of loss of cheques during transfer from the collecting bank to the drawee or payee bank is eliminated
• Limitations of the current clearance system with respect to jurisdiction and geography are eradicated. This enables integration and consolidation of several clearing locations across various banks offering different service levels into one standard clearance system applicable throughout the country
• CTS help reduce the scope of fraud significantly. Moreover, the electronic transmission is quick and allows early detection of fraud or any alteration with respect to the payee, amount or the issuer of the cheque. CTS prescribe minimum security features under ‘CTS-2010 standards’ along with superior verification process that further facilitates in the reduction of frauds
• The operational efficiency of both the bank as well as the customer is enhanced with the introduction of this system.

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