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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

Reserve Bank of India to do away with need to return paid government cheques to depts

Easing norms to enhance efficiency of cheque clearing system, the Reserve Bank will do away with the requirement of returning back paid government cheques to the concerned departments.

Presently Cheque Truncation System (CTS) is used to clear cheques that facilitates presentation and payment of cheques without their physical movement.

However, with regard to government cheques, they need to be sent back in physical form after the payment has been made to the government departments.

“The matter relating to dispensation of this requirement was taken up with the government and…the Controller General of Accounts, Ministry of Finance has given approval to our proposal of doing away with the requirement of returning paid government cheques back to government departments concerned,” RBI said in notification.

The revised guidelines would be effective from October 1, 2014, RBI said.

Accordingly, RBI said the government cheques would be paid in CTS clearing based on their electronic images. If any drawee bank wants to verify government cheque in physical form before passing it for payment, the image would be returned unpaid under the reason ‘present with documents’.

“The presenting bank shall ensure that the instrument is presented again in the next applicable clearing session without any reference to the account holder,” RBI said.

Among others, RBI said both the presenting and draweee banks need to preserve the cheques for a period of 10 years.

“In case some specific cheques are required for the purpose of any investigation, enquiry, etc., under the law, they may be preserved beyond 10 years.”

Also, government cheques paid by a drawee bank across its counter by cash withdrawal or transfer also needs truncation and preserved for 10 years and the drawee bank should continue to send the payment scrolls, monthly DMS, to government department.

“They should ensure that the mistakes/discrepancies pointed out are rectified as per procedure, missing images of paid cheques are submitted immediately, the copies of the scrolls duly verified by the PAO are kept on its record.”

Further, it said government may require any paid cheque in physical form for reconciliation, enquiry, investigation, and they can approach the drawee bank.

Source: The Economic times 

Five important rules about Cheques

The Reserve Bank of India recently implemented many new cheque rules to handle the rise in cheque related fraud cases. Some of them has been given below:

1) SMS alerts: The RBI asked banks to send an SMS alert to both payer and drawer when the cheque is received for clearing. Till now, SMS alerts were compulsory only for debit/credit card transactions. While dealing with suspicious or cheques of high value, banks have been asked to alert the customer by a phone call and obtain confirmation from both the parties involved in the transaction. The account holder’s bank branch must also be contacted.

2) Examination of cheques: Besides sending alerts, banks have been asked to examine cheques under UV lamp. This is applicable if the cheque amount goes over Rs 2 lakh. Also, a mechanism must be put in place to ensure multi-level checking of cheques for amount over Rs 5 lakh. Banks are also required to closely monitor how money is deposited or moved out from newly opened transaction accounts.

3) KYC compliance:  Whenever you open a new bank account, you are supposed to go through a process called Know Your Customer or KYC. It ensures that the bank verifies information about you, thus limiting fraud cases. So, the person writing the cheque will be compliant with KYC rules. The RBI now states that even the recipient should be KYC compliant.

4) CTS-2010 cheques: The use of 100% CTS-2010 compliant cheques should be ensured by the bank. As part of the Cheque Truncation System (CTS), an electronic image of the cheque is transmitted to the cheque-writer’s bank branch through the clearing house, along with other relevant information. It helps eliminate the need for physical movement of the cheque for verification. Thus the scope for fraud is reduced.

5) Cheque-handling infrastructure: RBI stated that high quality of equipment and personnel must be ensured for CTS-based clearing.