Cheque truncation- CTS or image based clearing system –ICS in India

Modern business demands faster cheque clearing system to meet immediate financial requirement and to make faster payments. Keeping this in mind Reserve bank of India has introduced many fast fund transfer system Like RTGS, EFT, ECS. However conventional method of issuing  cheque and depositing still exists at larger volume. This system cannot be eliminated or replaced by NEFT, RTGS easily.

Why still people use Cheque?

In the system of issuing paper cheque Drawer gets time for arranging fund. Cheque issued today will be cleared in one or two days in case of local clearing .Intercity cheques will take some more time to hit in issuer bank. Cheque will cleared on same day if presenting and drawee banks are same or special clearing like high value. Second thing is Lakh of knowledge about other fast money transfer methods.

Nowadays NEFT; RTGS can be done through internet banking facility provided by various public sector and Private Banks in India. You don’t need to visit bank, transaction can be done at home if you have computer with internet connection. And beneficiary will get faster credit.

Why Cheque truncation system in India?

Because of higher volume of paper cheque clearing exists and due to cheque system cannot be eliminated, Reserve bank has decided to increase the efficiency of existing cheque clearing system. CTS is the major up gradation of existing clearing system. Cheque truncation system ensure better customer service by speeding up the transactions, reduces the cost of clearing,  reduces the  chance of fraudulent action involved in clearing cycle.

What is Cheque truncation system?

In Cheque truncation, the physical instrument will be truncated at some point of clearing and an image of cheque would send along with MICR field, date of presentation, presenting bank etc. to clearing house and drawee bank. The electronic images will be added a digital signature of presenting bank for the purpose of ensuring uniqueness of images. The images will be rejected at clearing house if presenting bank and drawee bank are same

The main hindrances in the clearing system by moving cheque physically are

1. Transportation of cheques
2. Cheque transmitting time
3. Reconciliation problem
4. Clearing related fraud
5. Cost involved in clearing process

By introducing cheque truncation system, all the above problems can be overcome. Instead of moving paper cheque, an electronic image of cheque is transmitted through a secured electronic route from presenting bank to clearing house and clearing house to paying bank. Hence transporting charge of physical cheque eliminated and reduces the time to reach destination as cheques are moving electronically. Moving of physical cheque may cause manipulation in clearing cycle or lost during transit, but electronically moving images reaches safely through secure electronic route.

Benefits of Cheque Truncation

Following are the benefit of cheque truncation

To the customer

1. Faster clearing of fund, Local clearing would be on same day and intercity clearing  on next day of deposit
2. Since clearing cost reduces, there would be a chance to reduce intercity collection charges.
3. Better customer service, no chance for misplacing instrument during clearing cycle as there is no physical movement of cheque.

To Banks

1. Efficiency of clearing cycle will increase.
2. reduced reconciliation and clearing fraud
3. Minimize transaction cost
4. Reduces risk involved in clearing cycle
5. reduce data entry operations of cheque details so that less staff can be engaged in this work

Duties of a customer with respect to cheque truncation

1. Write a cheque with dark color ink
2. Do not alter cheque once written, altered cheque will not accept in CTS.
3. Make sure that Rubber stamp used in the cheque is not overshadowing important material portions like, Date, payee name, amount, signature, cheque number, MICR field etc. This will ensure all important parts of the cheque captured during scanning.

Can I get back the original cheque if returned?

No, you will not get original cheque instead payee bank issue a copy of the image for represent, this legally recognized replacement of original cheque is called Image replacement document (IRD).

Related posts:

1. Cheque cannot altered or corrected wef-01-12-2010 as per RBI notification
2. What is the Local clearing procedure?
3. What is a Pay order or Banker’s Cheque ?
4. R.T.G.S- Real time gross settlement, The fastet way of money transfer.
5. What is previlege or preferred banking?

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