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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.

Banks in Thanjavur to adopt CTS 2010

Banking in Thanjavur is poised to evolve further with the migration from manual clearing of instruments to the CTS 2010 format from Monday. However, the traders are apprehensive of some teething troubles. The new system has come a tad late to Thanjavur.

The ordinary cheques will make way for CTS 2010 formatted cheques. In Thanjavur, the State Bank of India (SBI) Main Branch has been acting as the clearing house thus far. The Reserve Bank of India had directed the migration that involves digital screening of the banking instruments such as cheques and demand drafts to facilitate efficient management of clearing operations, maintaining clearing timings, effective follow up, and most importantly prevention of malpractice, according to SBI Assistant General Manager Arunachalam Ganesan.

For smooth changeover, all banks and account-holders had been given intimation. The greatest advantage of the CTS was that there was no need for physical movement of financial instruments as they would primarily be transmitted in digitalised fashion, Mr. Ganesan told The Hindu . Also banks could accept instruments for the day’s clearing up to 4 p.m.

Welcoming the migration, some customers here fear teething trouble in implementing the programme. Some bank branches were not having the required infrastructure to host the programme and their clients would suffer for the time being. Another issue was that any marginal error such as a longer stroke in a signature while issuing instruments could land people in trouble as they might be rejected, said S. Prakash, an entrepreneur in Thanjavur. However, more inquisitive customers such as the former president of the District Chamber of Commerce and Industry K. Padmanabhan hopes that manual intervention in cases of marginal errors could cushion the problem. Thanjavur region is entering the CTS format rather late as only Gudalur region is said to be among the last centres not to enter the system so far. Many areas had migrated to CTS at least five years ago.

The transaction of financial instruments will be in digital format.

Banks will be able to accept cheques and drafts till 4 p.m. for day’s clearing.

Source: The Hindu