Cheque Truncation System is an efficient way of clearing cheques. It is in fact, better than the existing method. This article attempts to explain Cheque Truncation System and its benefits both to account holders as well as banks.
What is a Cheque Truncation System?
Cheque Truncation System (CTS) is a cheque clearing system undertaken by the Reserve Bank of India (RBI) for faster clearing of cheques. As the name suggests, truncation is the process of stopping the flow of the physical cheque in its way of clearing. In its place, an electronic image of the cheque is transmitted with key important data.
Cheque truncation thus obviates the need to move physical instruments across branches. 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. It is a system which is practiced worldwide in the banking sector.
Cheque Truncation System (CTS) was introduced and implemented in the National Capital Region (NCR) in February ’08 on a pilot basis. The number 2010 in ‘CTS-2010’ is because the guidelines for Cheque Truncation System came up in the year 2010.
In India, the RBI has made available inter-bank and customer payments online in near-real time in the form of RTGS and NEFT. However, cheques still remain a prominent mode of payment in the country. Physical cheques still account for 75% to 80% of all transactions.
So, the RBI has decided to focus on improving the efficiency of the cheque clearing cycle. Thus, offering CTS is an alternative. CTS also reduces operational risks in banking operations as clearing is a highly fraud-prone operation. This explains CTS from the regulators’ perspective.
Benefits to Account Holders
Since there is no physical movement of cheques, there is no fear of loss of cheque in transit. Usage of CTS cheques also means quicker clearance, shorter clearing cycle and speedier credit of the amount to your account. Depending on whether the cheque is local or outstation, the cheque can get cleared on the same day or within 24 hours.
The biggest advantage is that CTS-compliant cheques are more secure than old cheques and, hence multiple locations and reduce geographical restrictions in cheque clearing.
Hence, there are chances of multi-city cheques getting cleared on the same day, going forward.
For banks the benefits from CTS could be summarized as follows:
- Shorter clearing cycle
- Superior verification and reconciliation process
- No geographical restrictions as to jurisdiction
- Operational efficiency for banks and customers alike
- Reduction in operational risk and risks associated with paper clearing
Also, to reiterate, the scope for frauds are minimum under the CTS regime, which is good for banks. In addition to this, obviating the need to move physical cheques is extremely beneficial in terms of saving cost and time for banks. Certain benchmarks across the country have been prescribed like the quality of paper, watermark, bank’s logo in invisible ink, void pantograph, etc, and standardization of field placements on cheques. This will achieve standardization of cheques issued by banks.CTS is
CTS is less prone to frauds. Also, as the system matures, it is proposed to integrate.