Cheque truncation system

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This article is about specific system used in India. For general cheque truncation systems, see cheque truncation.

Cheque Truncation System (CTS) or Image-based Clearing System (ICS), in India, is a project undertaken by the Reserve Bank of India – RBI, for faster clearing of cheques.[1] CTS is basically an 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.

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 en 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.

Cheque truncation, would eliminate the need to move the physical instruments across branches, except in exceptional circumstances. This would result in 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.

Adoption Challenges[edit]

Integration with existing large banking systems- Legacy systems are a major IT and operational investment for banks. Most Banks have already invested on legacy systems and therefore it becomes vital that the new system has the capability to integrate seamlessly with the existing systems.

Expected Benefits[edit]

For Banks: Banks can expect multiple benefits through the implementation of CTS, like faster clearing cycle means realization of proceeds of cheque possible within the same day. It offers better reconciliation/verification process, better customer service and enhanced customer window. Operational efficiency will provide 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 system ensures data storage and retrieval is easy. Reduction of manual tasks leads to reduction of errors. Customer satisfaction will be enhanced, due to the reduced turn around time (TAT). Real-time tracking and visibility of the cheques, less fraudulent cases with secured transfer of images to the RBI are other possible benefits that banks may derive from this solution.[2]

For Customers: CTS / ICS substantially reduces the time taken to clear the cheques as well enables banks to offer better customer services and increases operational efficiency by cutting down on overheads involved in the physical cheque clearing process. In addition, it also offers better reconciliation and fraud prevention. CTS / ICS uses cheque image, instead of the physical cheque itself, for cheque clearance thus reducing the turn around time drastically.

Status of Implementation[edit]

The Reserve Bank of India first implemented CTS in National Capital Region, New Delhi from 27 December 2007 with 10 pilot banks and the dead line was set as 30 April 2008 for all the banks. This was followed by launch of CTS in Chennai on 24 September 2011. After migration from MICR to CTS the traditional MICR based cheque processing was discontinued in NCR and Chennai.[3]

Based on the experience gained and the benefits that would accrue to the customers and banks, it was decided to operationalise CTS across the country. Starting 1 August 2013 only CTS-2010 compliant cheques would be accepted for clearing.[4] On 17 July 2013 the RBI extended the deadline to 31 December 2013.[5]

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