Cheque Truncation System – Waning geographical limitations in cheque clearing operations .
Last week I received a call from one of my friends, who is running a successful business in Chennai. Without any customary introduction he started bombarding at me “ What do you think you bankers are up to? Do you ever know the trouble of managing a business? You keep on reminding us about our stock statements, EMI dates by SMS e-mail, phone calls etc but when we come with some cheques for depositing to our account you people put forward all fancy reasons for not accepting it”. A banker not accepting a cheque presented to him for crediting the customers account was something which I could not so easily digest. “ Why has your banker refused to accept the cheque”, I asked him. That is what I also don’t understand , he said and then narrated the incident.
My friend had a customer from whom payment was long overdue. With much follow up, coercion and other efforts he had some how managed to collect a cheque, after compromising some amount. Thus there was a correction in the amount written in words and the same was duly authenticated by the drawer of the cheque. My friend happily went to his bank for depositing the cheque to his account. The staff sitting at the counter refused to accept the cheque for collection, because there was an alteration in the amount written in words. My friend argued that the alteration has been duly authenticated and thus the cheque has to accepted for clearing. The staff at the counter said as CTS has been implemented at Chennai Clearing house the cheque cannot be accepted. It was shortly after this he rang me up to confirm the facts and find out solutions.
Cheque Truncation System ( CTS ) is the process of stopping the flow of the physical cheque issued by a drawer at some point with the presenting bank en-route to the drawee bank branch. In place of the physical cheque its electronic image is transmitted to the drawee branch by the clearing house, along with relevant information like data on the MICR band, date of presentation, presenting bank, etc. For enabling the implementation of CTS the provision of the Negotiable Instruments (NI) Act, 1881 under which the physical instrument had to be presented to the drawee branch for payment was amended during the year 2002 paving the way for the presentment of electronic images instead of the physical instrument. The Information Technology (IT) Act, 2000 and The Bankers’ Book Evidence (BBE) Act, 1891, was also suitable amended thereby providing the legal framework for the introduction of cheque truncation and e-cheques in India.
As per section 6 of the NI Act “a cheque in the electronic form” means a cheque which contains the exact mirror image of a paper cheque, and is generated, written and signed in a secure system ensuring the minimum safety standards with the use of digital signature (with or without biometrics signature) and asymmetric crypto system; and “a truncated cheque” means a cheque which is truncated during the course of a clearing cycle, either by the clearing house or by the bank whether paying or receiving payment, immediately on generation of an electronic image for transmission, substituting the further physical movement of the cheque in writing.
The Reserve Bank first implemented CTS in the National Capital Region (NCR), New Delhi with effect from 01st February , 2008. Chennai clearing has been brought under CTS from September, 2011onwards and is planned to be rolled out to other locations on a grid based approach . Accordingly, it has been envisaged to bring all the bank branches in the states of Tamilnadu, Kerala, Karnataka, Andhra Pradesh and the Union Territory of Puducherry under Chennai Grid in a phased manner.
CTS – Process flow at banks and clearing house
In the CTS environment the presenting bank captures the data and the images of a cheque by scanning the same. While scanning and capturing the data banks have to meet the specifications and standards prescribed for data and images.
For ensuring security, safety and non-repudiation of data / images, end-to-end Public Key Infrastructure (PKI) has been implemented in CTS. As part of the requirement, the presenting bank sends the data and captured images duly signed and encrypted to the Clearing House for onward transmission to the paying bank . The banks participating in CTS clearing are provided with an interface called the Clearing House Interface (CHI) that enables them to connect and transmit data and images in a secure and safe manner to the Clearing House (CH).
The Clearing House processes the data, arrives at the settlement figure and routes the images and requisite data to the drawee banks. This is called the presentation clearing. The drawee banks through their CHIs receive the images and data from the Clearing House for payment processing. The drawee CHIs also generate the return file for unpaid instruments, if any. The return file / data sent by the drawee banks are processed by the Clearing House in the return clearing session in the same way as presentation clearing and return data is provided to the presenting banks for processing. The clearing cycle is treated as complete once the presentation clearing and the associated return clearing sessions are successfully processed. The entire essence of CTS technology lies in the use of images of cheques for payment processing.
For reducing the chances of frauds on moving on to an electronic environment and enabling straight-through-processing by use of optical / image character recognition technology thereby reducing time and cost involved, standardization of cheque leaves issued by all banks were necessary. Accordingly RBI has vide circular dated 03rd September,2012 directed all banks to arrange to issue only multi-city/payable at par CTS-2010 standard cheques across the country not later than September 30, 2012. Banks have also been asked to initiate steps for withdrawing the non- CTS-2010 standard cheques in circulation before December 31, 2012 by creating awareness among customers through SMS alerts, letters, display boards in branches/ATMs, log-on message in internet banking, notification on the web-site etc. Banks holding post-dated EMI cheques should arrange for the replacement of non-CTS-2010 standard cheques with CTS-2010 standard cheques before December 31, 2012.
CTS – What it means to customers ?
Customers should ensure that only “CTS 2010” standards cheques are used. These cheques are not only image friendly but also have more security features. Customers may request their banks for cheque leaves that are compliant with the “CTS 2010” standard. Request from your bankers to surrender unused cheque leaves / replace the post dated EMI cheques given may promptly be attended to. It would always be better to use dark coloured ink while writing cheques , so that better clarity is obtained while scanning. No alterations or corrections should be made on the cheque. The prescription on prohibiting alterations / corrections on cheques has been introduced to curtail cheque frauds on account of alterations in the various fields of cheques and to give protection to customers as well as banks. No changes / corrections can be carried out on the cheques (other than for date validation purposes, if required). For any change in the payee’s name, courtesy amount (amount in figures) or legal amount (amount in words), fresh cheque leaves should be used. This would help banks in identifying and controlling fraudulent alterations. This prohibition is applicable to cheques cleared under the image based Cheque Truncation System (CTS) only and is effective from December 1, 2010. Even though it is not applicable to cheques cleared under other clearing arrangements for the time being it would be better we start practicing it as a rule as CTS will be implemented very fast across the country.
The electronic movement of images of cheques speeds up the process of settlement and can facilitate reduction in the clearing cycles. Once the cheque has been deposited for collection there need not be any fear of loss of instruments in transit. Use of images obviates the need to handle and move physical cheques at different points. The scope for frauds inherent in paper instruments is, thus, greatly reduced. Further, limitations of the existing clearing system in terms of geography or jurisdiction can be removed, thus enabling consolidation and integration of multiple clearing locations managed by different banks with varying service levels into a nation-wide standard clearing system with uniform processes and practices. Thus implementation of CTS across the country could pave way for a Pan India clearing house, whereby cheques drawn on any location in India would be treated as local cheque only. It might be against this background that RBI had vide circular dated 10th August, advised banks to issue only “payable at par” / “multi-city” CTS-2010 Standard cheques to all eligible customers. Banks have also been advised that since such cheques are cleared as local cheques in clearing houses, customers should not be levied extra charges. Thus reduced cost and faster realization of cheques given for collection would be the key positives for customers on account of CTS implementation. Just think of a situation where you deposit a cheque drawn on a bank branch located in a remote village in Uttar Pradesh or Jharkand with your bank at Kochi and receive the credit the very next day. CTS once fully implemented would, definitely make our country a smaller place, as far as cheque clearing operations are concerned.
The author is working as Asst General Manager,
Catholic Syrian Bank and the views expressed are the
personal opinion of the author.
Auther can be reached at firstname.lastname@example.org