• Cheque Truncation System in India: Everything You Need to Know

    Cheque Truncation System, abbreviated as CTS, is nothing but an electronic verification procedure using image-based processing. This system is followed for clearing cheques in an error-free, fast and hassle-free manner. This means that there will be no physical movement of the cheque but rather an electronic image-based transmission that will reduce the processing time. The Reserve Bank of India (RBI) has introduced this system because cheque is still one of the major modes of payment in the country. On the whole, CTS is designed to enhance the overall effectiveness of the cheque clearing system in India.

    What Exactly is Cheque Truncation?

    CTS or Cheque Truncation System is a process of clearing cheques through image-based verification. The electronic version of the cheque is sent for clearance with all necessary details such as MICR code, date and name of presenting bank.

    Advantages of CTS to Customers

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

    Advantages of CTS to Banks

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

    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:

    • These types of cheques are very image friendly
    • In-built with more security features
    • The IFSC code is generally printed on the top of the cheque leaf
    • Quality of paper will be maintained
    • The bank’s logo will ideally be in a type of invisible ink

    Precautions Customers have to take while using CTS 2010 Cheques

    • Customers should ideally request their banks to use only CTS 2010 cheques
    • Use pens that are made of suitable image-friendly ink for clear and error-free reading
    • Avoid overwriting on cheques
    • 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.

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