Cheque Truncation System in India

Stepwise Process Involved in Clearing Cheques using CTS

Step 1: First, an electronic image of the cheque is captured by the presenting bank (collecting bank) through a 'Capture System'.

Step 2: The presenting bank then sends this data in an encrypted format to the 'Clearing House', from where it will be sent to the paying bank.

Step 3: The cheque-related data is transmitted between the collecting and paying bank through a Clearing House Interface, which is sort of a gateway.

Step 4: The next step is 'Presentation Clearing', which involves the process of data reading. After which, the data will be sent to the concerned paying bank.

Step 5: Once the paying bank gets the all the images and data through the clearing house, the payment is processed.

Background: This new system of cheque clearing was first introduced on a pilot basis by the RBI in New Delhi on February 1, 2008. CTS was then launched in 2011 in Chennai. It was then launched as a nation-wide system from August 1, 2013 after the various benefits of the scheme were analysed.

On the whole, CTS is a more secure, fast and organised approach to clearing cheques in the country.

Use of CTS 2010 cheques

In order to avoid any fraud, it is advisable that CTS 10 cheques are used. The following are the features of CTS 2010 cheques:

1. These types of cheques are very image friendly
2. In-built with more security features
3. The IFSC Code is generally printed on the top of the cheque leaf
4. Quality of paper will be maintained
5. The bank's logo will ideally be in a type of invisible ink

Advantages of CTS to Customers

1. Faster clearing of cheques since there is no physical movement involved
2. It is a more cost effective process
3. This improves the quality of service for customers and hence money is credited to the beneficiary account faster than before
4. Cheques following this system generally get cleared within a 24-hour window
5. Eliminates errors in the cheque clearing process, making the process a more secure one
6. The chances of cheque-based frauds will be much lesser
7. Reduces the chance of the cheque being lost in transit
8. Eliminates any logical and reconciliation relates issues
9. Improves the operational efficiency of the cheque-clearing system in India
10. There will be lesser geographical restrictions
11. Even cheques from different cities will be cleared on the same day

Advantages of CTS to Banks

1. Creates a uniform method of clearing cheques across the country
2. The verification process is far more better than before
3. Makes the reconciliation process much faster and easier
4. This eliminates the need for any sort of collecting charges
5. Brings down operational risks
6. Cost effective
7. Helps in human resource rationalisation

How CTS Improves the Cheque Clearing Timeline

The Cheque Truncation System (CTS) has significantly accelerated the cheque clearing process in India. Traditionally, physical cheques had to be transported between banks and clearinghouses, which could take several days. With CTS, cheques are scanned and electronic images are transmitted instantly, eliminating the need for physical movement. This electronic clearing reduces the clearing cycle from several days to just one day or even same-day clearance in many cases. Faster cheque clearing improves liquidity for customers and banks alike, enhancing overall banking efficiency and customer satisfaction.

Important Precautions for Customers Using CTS 2010 Cheques

1. Customers should ideally request their banks to use only CTS 2010 cheques
2. Use pens that are made of suitable image-friendly ink for clear and error-free reading
3. Avoid overwriting on cheques
4. Use a new cheque leaf instead of making alternation on a cheque leaf

As far as customers are concerned, there will be no big change in the way they have been issuing or using cheques. The only thing that customers need to keep in mind is to use an ink that is compatible with the image recognition tool.

Common Errors to Avoid While Using CTS

To ensure smooth processing of cheques through CTS, customers must avoid some common errors:

1. Writing outside designated cheque boundaries, which can cause image distortion.
2. Using non-CTS compliant cheque books which may be rejected.
3. Writing unclear or smudged information, especially signatures and amounts.
4. Using non-image-friendly inks or pens.
5. Not filling all mandatory fields correctly.

By avoiding these mistakes, customers can help prevent cheque rejections or delays during clearing.