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Benefit of Cheque Truncation to Customers of Banks

The cheques presented by customers, today, are sent to the clearing house at the drawee centres by the beneficiaries bank. The cheques at the bigger cities, in view of the large volume of paper instruments, are subjected encoding and then to mechanical sorting and thereafter reach the drawee branches. As per the existing banking practice, these instruments received at the counters of the drawee branches are paid or returned by them. The returned instruments are passed on to the presenting customers through the process of a return clearing. Only after the return clearing process gets over, banks release the credit to the customers. The beneficiaries account gets credited on the same day on which the drawees account gets debited; however, the beneficiary is permitted to use the proceeds only after the return clearing process. With the introduction of the imaging and truncation, the physical movement of instruments would be stopped and the electronic movement of images of cheques would speed up the process of settlements and ultimately alter the clearing cycles. The clearing cycle could be shortened and it would be possible for customers to realize the proceeds of cheques early. Thus cheque truncation would reduce effectively the time of float, i.e. time from the point of issue of cheque to the point of time the actual debit takes place. In case such clearing is introduced across the cities, it would ensure the realisation of inter-city instruments faster thus ensuring early availability of funds to beneficiaries. Thus the benefits could be summarized as:

a) Faster clearing cycle;

b) Better reconciliation/verification process

c) Better Customer Service and Enhanced Customer Window

d) T+0 for Local Clearing and T + 1 for inter-city clearing.

e) Elimination of Float and Incentive to shift to Credit Push payments.

f) The jurisdiction of Clearing House can be extended to the entire country and No Geographical   Dependence

g) Operational Efficiency will benefit the bottom lines of banks and Local Clearing activity is a high cost no revenue activity.

h) Minimises Transaction Costs.

i) Reduces operational risk by securing the transmission route.

Entire process flow envisaged in the Cheque Truncating System (CTS)

The CTS project envisages a safe, secured, faster and effective system for clearing of the cheques. In the CTS the presenting bank will capture the data & images of the cheques using their Capture System which is internal to them. They have to meet the specifications and standards prescribed for data and images. To ensure security, safety and non-repudiation the PKI (Public Key Infrastructure) is being implemented across the system. The banks will send the captured images and data to the central clearing house for onward transmission to the payee/drawee banks. For that purpose RBI will be providing the banks software called the Clearing House Interface (CHI) that will enable them to connect and transmit data in a secure way and with non-repudiation to the Clearing House (CH). The Clearing House will process the data and arrive at the settlement figure for the banks and send the required data to payee/drawee banks for processing at their end. The drawee/payee banks will use the same CHI mentioned earlier for receiving the data and images from the Clearing House. It will be the responsibility of the drawee bank Capture System to process the inward data and images and generate the return file for unpaid instruments.

State to adopt cheque truncation system from Feb 15

JAIPUR: To expedite the payment process for contractors and other cheque transactions, the state government will switch to ‘Cheque Truncation System’ from February 15. Under CTS, presentation and payment of cheques are based on their electronic images thus doing away with the flow of the physical cheques issued by a drawer to the drawee branch.

Following the guidelines of Reserve Bank of India (RBI), state government has decided to adopt the system from mid-February. CTS will enhance efficiency of cheque clearance and make transaction process more transparent. In place of physical cheques an electronic image of the cheque will now be transmitted to the drawee branch through clearing house.

The process would obviate the need to move the physical cheques across branches, other than in exceptional circumstances for clearing purposes. This effectively eliminates the associated cost of movement of physical cheques, reduces the time required for their collection and brings elegance to the entire activity of cheque processing.

CTS will also effectively eliminate the associated cost of movement of the physical cheques, reduces the time required for their collection and bring elegance to the entire activity.

“Most processes of transferring money in the government is already being done online but there are many departments where payments to contractors and agencies take place through cheques. This will now be replaced by CTS,” said an official from the finance department. Departments that are likely to be benefited the most from the process are PWD, PHED, irrigation and forest department.

Meanwhile, as per the RBI directions all state governments have to switch to CTS pushing the discontinuation of MICR-based cheque system.

Source: The Times of India