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RBI’s Initiative in Cheque Truncation System – 2010

The RBI set up a working group on Cheque Truncation and e-cheques, which studied the Truncation and Imaging processes of other countries and came out with the following recommendations:-

  • In India the cheques should be truncated at the presenting bank itself and there should not be any amount based restriction.
  • An electronic image based model will be the mode of truncation.
  • The storage requirement of the electronic image of physical cheques is necessary and the preservation period should be eight years.
  • Truncation and standardization of cheque format are seen as independent initiatives with the latter being implemented even after the introduction of cheque truncation. Therefore, currently the settlement should be on the basis of the current structure of the MICR fields.
  • Public key infrastructure (PKI) to be adopted to protect data and image flow over the network. Digital signatures should be used to establish authenticity, non-repudiation and integrity
  • The security requirements for the storage of images by the banks or the centralized warehousing agency should be in consonance with the requirements of the IT Act 2000.
  • From the point of view of efficiency and control, RBI is planning to set up a centralized clearing system and a central warehouse in Delhiwhere a single agency or individual drawee bank can act as the points of storage.

Keeping all these points in minds, RBI has already floated a RFP to various vendors to provide it with an all-inclusive technology for cheque truncation. It has plans of starting the Project in the National Capital Region by July 2005 and then rolling it out to other metros. The overall aim being to eliminate physical transfer of cheques in the peak centers in the next two years time.

Tips to replace non CTS-2010 compliant cheques

The advent of CTS-2010 compliant cheques will make the existing cheques invalid from 31 July 2013. The customers who have deposited non-CTS cheques as post-dated cheques (PDCs) for EMIs to a finance company, or bank for repayment of a loan, will have to replace these with the compliant ones for installments after 31 July. The non-compliant cheques will not be honored by banks and will amount to non-payment and default on the part of the customer.

ECS debit mandate: If the cheques are not CTS-2010 compliant, the customer will have to provide an ECS instruction to debit his bank account for the loan installment. For this, ECS form has to be filled and submitted to the loan institution.

Documents: The signed ECS form, a copy of a cancelled cheque of the account from which the person wants the EMI installment to be debited, and CTS compliant EMI cheques for 2-3 installments (till the instruction is processed ) must be submitted.

Processing: The loan institution will accept the ECS instruction and the CTS-compliant PDC cheques, and will destroy the old non-compliant cheques.

Points to note

  • A default on account of non-compliance will affect the credit score of the individual.
  • In places where ECS facility is not available, the CTS-2010 compliant EMI cheques will have to be issued to the loan institution to replace the old cheques.

Technology Behind Cheque Truncation Process

The technology used in cheque clearing process or technology behind the new cheque truncation process is as follows:-

  1. Cheques are kept in the presentation bank and are never sent to the Clearing House or to the drawer’s bank. The information on the cheque is encoded or read using MICR and then image processing technologies are used to convert cheque images to digital form.
  2. The image of the cheque is captured as it goes through the reader/sorter machine. This can be done by using either digital cameras to capture the digitized form of the front and back of the cheque or another alternative is by using a two-way digital scanner.
  3. The image is captured in the JPEG or GIF extension and can be preserved as images on a microfilm, an arrangement that permits signature verification should the need arise.
  4. During image compression the images should be of at least 100 dpi resolution so that the quality of the image is maintained.
  5. All cheques are stamped with serial numbers for use in potential inquiries. These should match with the number of the image.
  6. As most banks are gearing towards networked branches, Broadband and VPN could be the model adopted for providing connectivity. Dial-up or Leased Line can be used for transmission of MICR Codeline and images to the member banks via the Clearing House.
  7. JAVA based API can facilitate internal/external interactions with the archive. Browser based interface with which the customer can receive the cheque image  statements via e-mail to see when the cheque was written, to whom it was made out and when was it cleared, will be extremely beneficial in the long run.
  8. The Technology should allow Drawee Bank/branches to view the front and reverse of cheque images of individual instruments in a number of ways (flipped, rotated, turned or enlarged a particular field/section) using any standard browser interface.