Cheques Truncation System (CTS0 paper to follow PTF)

Truncation is the process of stopping the flow of the physical cheque issued by a drawer at some point by the presenting bank en-route to the paying bank branch. In its place an electronic image of the cheque is transmitted to the paying branch through 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 bank 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.

Cheque Truncation System (CTS) or Image-based Clearing System (ICS), in India, is a project of the Reserve Bank of India (RBI), commenced in 2010, for faster clearing of cheques. CTS is based on a cheque truncation or online image-based cheque clearing system where cheque images and magnetic ink character recognition (MICR) data are captured at the collecting bank branch and transmitted electronically.

Cheque truncation means stopping the flow of the physical cheques issued by a drawer to the drawee branch. The physical instrument is truncated at some point in route to the drawee branch and an electronic image of the cheque is sent to the drawee branch along with the relevant information like the MICR fields, date of presentation, presenting banks etc. This would eliminate the need to move the physical instruments across branches, except in exceptional circumstances, resulting in an effective reduction in the time required for payment of cheques, the associated cost of transit and delays in processing, etc., thus speeding up the process of collection or realization of cheques.

For banks

Banks derive multiple benefits through the implementation of CTS, like a faster clearing cycle meaning technically possible realization of proceeds of a cheque within the same day. It offers better reconciliation/verification, better customer service and enhanced customer window. Operational efficiency provides a direct boost to bottom lines of banks as clearing of local cheques is a high-cost low revenue activity. Besides, it reduces operational risk by securing the transmission route. Centralized image archival systems ensure that data storage and retrieval is easy. Reduction of manual tasks leads to reduction of errors. Real-time tracking and visibility of the cheques, less frauds with secured transfer of images to the RBI are other benefits that banks derive from this solution.

For customers

Customer satisfaction is enhanced, due to the reduced turnaround time (TAT). It also offers better reconciliation and fraud prevention.

Even though Speed clearing hastens the process of cheque collection as compared to outstation cheque collection, it requires the presence of the paying bank branch in the clearing house location. In comparison, grid-based CTS, is a superior system as it encompasses a larger geographical area and the chances of paying bank not having presence in the grid location is seldom.

Under grid-based Cheque Truncation System clearing, all cheques drawn on bank branches falling within in the grid jurisdiction are treated and cleared as local cheques. Cheque collection charges including Speed Clearing Charges should not be levied if the collecting bank and the paying bank are located within the jurisdiction of the same CTS grid even though they are located in different cities.

With the introduction of imaging and truncation, the physical movement of instruments is stopped. The electronic movement of images can facilitate reduction in the clearing cycles as well. Moreover, there is no fear of loss of instruments in transit. Further, limitations of the existing clearing system in terms of geography or jurisdiction can be removed, thus enabling consolidation and integration of multiple clearing locations managed by different banks with varying service levels into a nation-wide standard clearing system with uniform processes and practices.

Under grid-based Cheque Truncation System clearing, all cheques drawn on bank branches falling within in the grid jurisdiction are treated and cleared as local cheques. No outstation cheque collection charges/Speed Clearing charges to be levied if the collecting bank and the paying bank are located within the jurisdiction of the same CTS grid even though they are located in different cities.

CTS also benefits issuers of cheques. The Corporates if needed can be provided with images of cheques by their bankers for internal requirements, if any.

CTS thus brings elegance to the entire activity of cheque processing and clearing. The benefits from CTS could be summarized as follows:

• Shorter clearing cycle
• 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
• No collection charges for collection of cheque drawn on a bank located within the grid.

A record of instruments transmitted with ‘Paper to Follow’ model shall be maintained by both the banks, to have appropriate control over the movement of paper instruments. According to the provisions of the N.I. Act, the drawee bank shall retain and preserve the physical instrument after making the payment thereof.

The banks are required to document the process flow and maintain adequate control mechanisms. It is important that special care and adequate physical checks be taken during rescanning of instruments and representation of instruments.

The drawee bank will be eligible to lodge return in the Clearing House, if the instrument in the “Paper to Follow” mode has not been delivered within the stipulated time, as indicated. If a “Paper to Follow” item gets returned citing reason; “Paper not Received”, the flag would be removed automatically by the system. The physical instruments will have to be returned in case the same have been received by the bank, under “Paper to Follow” type.

Leaving the clearing house premises without notifying any discrepancy will be construed as confirmation of receipt of all the physical cheques. No claims of non-receipt of physical instruments will be entertained at a later stage. Only the persons authorized by bank shall come to the clearing house for collecting the physical cheques. The authorized person should carry the I-card duly issued by the bank and a letter of authorization to collect the instruments. NPCI will refuse entry to any person who could not produce the documents as stated above.

Benefits:

• Faster Process
• Minimal chances of fraudery
• Hassle Free and Easy to Follow
• Keeping better track of transactions