Image-based Clearing System (ICS) or Cheque Truncation System (CTS) is a project started by the Reserve Bank of India (RBI) in 2010, to speed up the processing of cheques in banks. CTS is based on an image-based clearing system where Magnetic Ink Character Recognition (MICR) data and cheque images are transmitted by the collecting bank to the drawee bank. The CTS stops the flow of physical cheques between the collecting branch and the drawee branch. At some point en route to the drawee branch an image of the cheque and the MICR data are captured and transmitted to the drawee branch, this has eliminated the need to move physical instruments between branches, thereby, reducing the time taken to process cheques and the costs associated with physically moving instruments between branches.
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The Cheque Truncation System (CTS) was first implemented by the Reserve Bank of India in New Delhi on February 1st, 2008 with 10 pilot banks with a deadline of 30th April, 2008 for all banks. CTS was launched in Chennai on 24th September, 2011. After the migration from MICR to CTS, the MICR system was discontinued in NCR and Chennai. Staring August 1st, 2013 only CTS-2010 compliant cheques could be submitted for clearing. But on July 17th, 2013 the deadline was reset to December 31st, 2013.
Purpose of Cheque Truncation System
The Cheque Truncation System (CTS) was introduced to reduce the time taken to collect cheques and clear them, thereby, improving customer service. The system also reduces the scope of clearing related frauds, reduces reconciliation errors, reduces the cost of collection, and almost eliminates logistics related problems. Even though there are other products on offer, such as, the Real Time Gross Settlement (RTGS) and the National Electronic Fund Transfer (NEFT) to make payments, many people prefer using cheques, keeping this in mind, the Reserve Bank of India (RBI) decided to increase the efficiency of the cheque clearing system. The CTS is a more secure system than the exchange of physical documents which requires the document to move from one point to another, ‘causing an increase in the processing time of cheques and there is a risk of the documents getting misplaced during transit, mutilated during transit or manipulated during transit.
Process of Cheque Truncation
As the CTS is an image-based truncation system the process for clearing a cheque under CTS is different to clearing a non-CTS 2010 cheque. The step-by-step process of clearing a CTS 2010 cheque has been listed below:
- The presenting bank captures images and data pertaining to the cheque on a capturing system.
- The presenting bank will then transmit the captured data duly signed and encrypted to the clearing housing for further transmission to the paying bank. For the purpose of providing a secure line of communication the presenting bank and the paying bank are provided with an interface called the Clearing House Interface (CHI), this interface allows both banks to transmit data to the Clearing House in a secure manner.
- To arrive at a settlement figure the Clearing House processes the data it has received and routes the data and images to the paying bank. This process is Presentation Clearing. Through the CHI the paying bank receives the data from the Clearing House to initiate the processing of the payment. The paying bank’s CHI also generates the return file for unpaid instruments.
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CTS 2010 Cheques
The CTS can process all types of cheques presented, but to achieve standardisation of cheques issued and to eliminate cheque frauds a set of norms called the CTS 2010 was introduced. These norms include various security measures on cheques, such as, the quality of the paper used, a watermark, the bank’s logo in invisible ink, a void pantograph etc. and a standardisation of field placements on the cheques. The various new features present on a CTS 2010 cheque are:
- Boxes present to include date in dd/mm/yyyy format.
- IFSC and bank address is printed on the top of the cheque.
- Name of the printer with CTS-2010 is printed on the left side of the cheque.
- A pantograph showing VOID/COPY while photocopying a cheque under the account number.
- The bilingual format has been replaced with the rupee symbol.
- Field for signature provided at the bottom right.
- The CTS INDIA watermark is visible under light.
- An ultra violet logo of the bank is printed on the upper left side only visible under UV light.
FAQ's of Electronic Clearing Service (ECS)
What is ECS?
Ans: ECS which stands for Electronic Clearing Service is a system that facilitates transactions that are directly linked to your account.
When was ECS payments introduced in the country?
Ans: The country’s central bank i.e., Reserve Bank of India introduced ECS during the 1990s. ECS payments are used to handle bulk and repetitive payments.
What happens if ECS bounces?
Ans: In case ECS bounces, you will have to pay a fine. The fine required to be paid can go up to Rs.750.
Can ECS payment be stopped?
Ans: Yes, an ECS payment can be stopped. All you need to do is instruct the bank to stop the payment.
What is the difference between ECS and NACH?
Ans: In ECS, settlement takes 3 to 4 days. However, in NACH settlement is carried out within 24 hours. Moreover, NACH has a unique mandate registration reference number which can be used for future transactions unlike ECS.
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