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RBI prescribes measures for banks to prevent cheque frauds

In view of the rise in the number of cheque related fraud cases, the Reserve Bank of India has asked banks to put in place preventive measures including sending an SMS alert to payer/drawer when cheques are received in clearing.

Further, to prevent cases of suspicious or large value cheques (in relation to an account’s normal level of operations), the central bank has advised banks to alert customers by a phone call and get the confirmation from the payer/drawer.

The RBI has told banks to ensure the use of 100 per cent CTS (cheque truncation system) – 2010 compliant cheques.

Under the CTS environment, electronic image of the cheque is transmitted to the drawee branch through the clearing house, along with relevant information such as data on the MICR (magnetic ink character recognition) band, date of presentation, and presenting bank. Cheque truncation obviates the need to move the physical instruments across branches.

According to a RBI notification on preventive measures for cheque related fraud cases, banks are required to strengthen the infrastructure at the cheque handling Service Branches and bestow special attention on the quality of equipment and personnel posted for CTS based clearing, so that it is not merely a mechanical process.

Banks have to ensure that the beneficiary is KYC (know-your-customer) compliant so that the bank has recourse to him/her as long as he/she remains a customer of the bank.

The RBI said banks should put in place a mechanism whereby all cheques beyond a threshold of say, Rs. 2 lakh are examined under UV lamp. Checking should be done at multiple levels, of cheques above a threshold of say, Rs. 5 lakh.

The threshold limits mentioned above can be reduced or increased at a later stage with the approval of the Board depending on the volume of cheques handled by the bank or its risk appetite.

Banks are required to closely monitor credits and debits in newly opened transaction accounts based on risk categorization.

In its notification, the RBI said “the rise in the number of cheque related fraud cases is a matter of serious concern. It is evident that many of such frauds could have been avoided had due diligence been observed at the time of handling and/or processing the cheques and monitoring newly opened accounts.”

Therefore, banks have been advised to review and strengthen the controls in the cheque presenting/passing and account monitoring processes and to ensure that all procedural guidelines including preventive measures are followed meticulously by the dealing staff/officials.

Referring to some cases where even though the original cheques were in the custody of the customer, cheques with the same series had been presented and encashed by fraudsters, the RBI said banks should take appropriate precautionary measures.

The precautionary measures have to ensure that the confidential information — customer name/account number/signature, cheque serial numbers and other related information are neither compromised nor misused either from the bank or from the vendors’ (printers, couriers etc.) side.

The RBI also said due care and secure handling is also to be exercised in the movement of cheques from the time they are tendered over the counters or dropped in the collection boxes by customers.

Source: Business Line

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