1. What is Cheque Truncation?
Truncation is the process of stopping the flow of the
physical cheque issued by a drawer at some point by the presenting bank en-route to the drawee bank branch. In its place an electronic image of the cheque is transmitted to the drawee branch through the clearing house, along with relevant information like data on the MICR band, date of presentation, presenting bank, etc. Cheque truncation thus obviates the need to move the physical instruments across branches, other than in exceptional circumstances for clearing purposes. This effectively eliminates the associated cost of movement of the physical cheques, reduces the time required for their collection and brings elegance to the entire activity of cheque processing.
physical cheque issued by a drawer at some point by the presenting bank en-route to the drawee bank branch. In its place an electronic image of the cheque is transmitted to the drawee branch through the clearing house, along with relevant information like data on the MICR band, date of presentation, presenting bank, etc. Cheque truncation thus obviates the need to move the physical instruments across branches, other than in exceptional circumstances for clearing purposes. This effectively eliminates the associated cost of movement of the physical cheques, reduces the time required for their collection and brings elegance to the entire activity of cheque processing.
2. Why Cheque Truncation in India?
As explained above, Cheque Truncation speeds up the process of collection of
cheques resulting in better service to customers, reduces the scope for
clearing-related frauds or loss of instruments in transit, lowers the cost of collection of cheques, and removes
reconciliation-related and logistics-related problems, thus benefitting the
system as a whole. With the other major products being offered in the form of
RTGS and NEFT, the Reserve Bank has created the capability to enable inter-bank and customer payments
online and in near-real time. However, as cheques are still the prominent modes
of payments in the country. Reserve Bank of India has therefore decided to
focus on improving the efficiency of the cheque clearing cycle, offering Cheque Truncation
System (CTS) as an alternative. As highlighted earlier, CTS is a more secure
system vis-a-vis the exchange of physical documents.
In addition to operational efficiency, CTS offers several benefits to banks and customers,
including human resource rationalisation, cost effectiveness, business process
re-engineering, better service, adoption of latest technology, etc. CTS, thus, has emerged as
an important efficiency enhancement initiative undertaken by Reserve Bank in
the Payments Systems area.
3. What is the status of CTS implementation in the country?
The Reserve Bank has implemented CTS in the National Capital
Region (NCR), New Delhi, Chennai and Mumbai with effect from February 1, 2008,
September 24, 2011 and April 27, 2013 respectively. After migration of the entire cheque volume from MICR system to
CTS, the traditional MICR-based cheque processing has been discontinued in
these three locations. . Based on the advantages realised by the stakeholders and the
experience gained from the roll-out in these centres, it has been decided to
operationalise CTS across the country. Accordingly, Grid based CTS clearing has
been launched in these three locations.
4. What is the new approach to CTS implementation in the country?
The new approach envisioned as part of the national roll-out is
the grid-based approach. Under this approach the entire cheque volume in the
country cleared across numerous MICR Cheque Processing locations will be consolidated into the three grids as
mentioned in (3) above.
Each grid will provide processing and clearing services to all the banks under its jurisdiction,
Banks, branches and customers based at small / remote locations falling under
the jurisdiction of a grid would be benefitted, irrespective of whether there
exists at present a formal arrangement for cheque clearing or otherwise. The illustrative jurisdiction
of the three grids are indicated below:
New Delhi Grid: National Captial Region of New Delhi, Haryana,
Punjab, Uttar Pradesh, Uttarakhand, Bihar, Jharkhand and the Union Territory of
Chandigarhhttp://www.gr8dreamz.com.
Banks
Mumbai Grid: Maharashtra, Goa, Gujarat, Madhya Pradesh and
Chattisgarh.
Chennai Grid: Andhra Pradesh, Telangana, Karnataka, Kerala, Tamilnadu,
Odisha, West Bengal, Assam and the Union Territory of Puducherry.
5. Is it possible to briefly explain the entire process flow in
CTS?
Yes. In CTS, the presenting bank (or its branch) captures the data
(on the MICR band) and the images of a cheque using their Capture System (comprising of a scanner,
core banking or other application) which is internal to them, and have to meet
the specifications and standards prescribed for data and images.
To ensure 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
collecting bank (presenting bank) sends the data and captured images duly
signed and encrypted to the central processing location (Clearing House) for onward transmission to
the paying bank (destination or drawee bank). For the purpose of participation
the presenting and drawee banks are provided with an interface / gateway 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 generates 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 (instead of the physical
cheques) for payment processing.
6. What type of cheques can be presented for clearing through CTS?
It is preferable to present cheques complying with CTS-2010 standards for clearing through CTS.
Cheques presented as part of Speed Clearing are handled in CTS as well (for
more details on Speed Clearing, the related FAQs may be referred to).
Incidentally, given the fact that images of cheques (and not the physical cheques) alone need to move in CTS, it is
possible for the removal of the restriction of geographical jurisdiction
normally associated with the paper cheque clearing. For reaping this benefit,
the concept of Grid-CTS clearing has been envisaged at three locations in the
country (Chennai, Mumbai and New Delhi). Under the grid clearing, cheques drawn on centres included in the
grid will be cleared as part of local clearing.
7. Will there be any change in the process for the customers?
No. There is no change in the clearing process for customers.
Customers continue to use cheques as at present, except to ensure the use of
image-friendly-coloured-inks while
writing the cheques. Of course, such of those customers, who are used to
receiving the paid instruments (like government departments) would also receive
the cheque images. Cheques with alterations in material fields (explained in
detail later) are not allowed to be
processed under the CTS environment.
8. What are the benefits of CTS to customers of banks?
The benefits are many. With the introduction of imaging and
truncation, the physical movement of instruments is stopped. The electronic
movement of images can facilitate
reduction in the clearing cycles as well. Moreover, there is no fear of loss of
instruments in transit. 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 intoa
nation-wide standard clearing system with uniform processes and practices.
CTS also benefits issuers of cheques. 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. The Corporates if needed can be
provided with images of cheques by their bankers for internal requirements, if
any. As only the images move, the time taken for receipt of paid cheques is http://www.gr8dreamz.comreduced which also
gives an early opportunity to the issuers of cheques to detect frauds or
alterations, if any, in terms of what (and to whom it) was issued and what (by
whom it) was realised.
CTS brings elegance to the entire activity of cheque processing
and clearing. Cheque frauds can be greatly reduced with introduction of common
minimum security features prescribed
under CTS Standards 2010 for early interception of altered / forged
instruments. Obviating the need to move the physical cheques is extremely
beneficial in terms of cost and time savings.
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
9. If a customer desires to see the physical cheque issued by him
for any reason, what are the options available?
Under CTS the physical cheques are retained at the presenting bank level and
do not move to the paying banks. In case a customer desires, banks can provide
images of cheques duly authenticated. In case, however, a customer desires to
see / get the physical cheque, it would need to be sourced from the presenting
bank, for which a request should be made to his/her bank. An element of cost /
charge may also be involved for the purpose. To meet legal requirements,
the presenting banks which truncate the cheques need to preserve the physical
instruments for a period of 10 years.
10. How would be the uniqueness of a physical cheque be captured
and imparted to the cheque image?
CTS in India mandates the use of prescribed image specifications
only. Images that do not meet the specifications are rejected. As the payments
are made on the basis of the images, it is essential to ensure the quality of
the images. To ensure only images of requisite quality move in the CTS
processing cycle, there is a rigorous quality check process at the level of the
Capture Systems and the Clearing House Interface (of the presenting bank). The
solution encompasses Image Quality
Assessment (IQA) at different levels. The presenting bank is required to
perform the IQA during the capture itself. Further IQA is done at the gateway
before onward transmission to clearing house. The images are captured with
digital signatures of the presenting bank and thereafter transmitted to the
Clearing House and then to the paying banks. Further, the paying banks, if not
satisfied with the image quality or for any other reason, can ask for the
physical instrument to facilitate payment processing.
Further, the new cheque standard "CTS-2010" prescribes
certain mandatory and optional security features to be available on cheques, which will also add to the uniqueness of
the images.
11. What are the image specifications in CTS in the Indian
context?
Imaging of cheques can be based on various technology options. The
cheque images can be Black & White, Gray Scale or Coloured. These have
their associated advantages and disadvantages. Black & White images are
light in terms of image-size, but do not reveal all the subtle features that
are there in the cheques. Coloured images are ideal but increase storage and
network bandwidth requirements. Gray Scale
images are mid-way. CTS in India use a combination of Gray Scale and Black
& White images. There are three images of each cheques that need to be
taken - front Gray Scale, front Black & White and back Black & White.
12. How are the images of cheques taken?
Images of cheques are taken using specific scanners. Scanners also function like photo-copiers by
reflecting the light passed through a narrow passage on to the document. Tiny
sensors measure the reflection from each point along the strip of light.
Reflectance measurements of each dot are called a pixel. Images are classified as
black and white, gray-scale or colour based on how the pixels are converted
into digital values. For getting a gray scale image the pixels are mapped onto
a range of gray shades between black and white. The entire image of the
original document gets mapped as some shade of gray, lighter or darker,
depending on the colour of the source. In the case of black and white images,
such mapping is made only to two colours based on the range of values of
contrasts. A black and white image is also called a binary image.
13. How the image and data transmitted over the network is
secured?
The security, integrity, non-repudiation and authenticity of the data and image transmitted from the
paying bank to the payee bank are ensured using the Public Key Infrastructure
(PKI). CTS is compliant to the requirements of the IT Act, 2000. It has been
made mandatory for the presenting bank to sign the images and data from the
point of origin itself. PKI is used throughout the entire cycle covering
capture system, the presenting bank, the clearing house and the drawee bank.
The PKI standards used are in accordance with the appropriate Indian acts and notifications of Controller of Certifying
Authority (CCA)
14. What is Cheque Standardisation and what does CTS 2010 Standard
mean?
Standardisation of cheque forms (leaves) in terms
of size, MICR band, quality of paper, etc., was one of the key factors that
enabled mechanisation of cheque processing. Over a period of time, banks have
added a variety of patterns and design of cheque forms to aid segmentation,
branding, identification, etc., as also incorporated therein a number of
security features to reduce the incidence of cheque misuse, tampering,
alterations, etc. Growing use of multi-city and payable-at-par cheques for
handling of cheques at any branches of
a bank, introduction of Cheque Truncation System (CTS), increasing popularity
of Speed Clearing, etc., were a few aspects that led to prescription of certain
common minimum security features in cheques printed, issued and handled by
banks and customers uniformly across the banking industry. Accordingly, certain
benchmarks towards achieving standardisation of cheques issued by banks across
the country have been prescribed like – quality of paper, watermark, bank’s
logo in invisible ink, void pantograph, etc., and standardisation of field
placements on cheques. In addition,
certain desirable features have also been suggested to be implemented by banks
based on their need and risk perception.
The set of minimum security features would not only ensure
uniformity across all cheque forms issued by banks in the country but also help
presenting banks while scrutinising /
recognising cheques of drawee banks in an image-based processing scenario. The
homogeneity in security features is expected to act as a deterrent against
cheque frauds, while the standardisation of field placements on cheque forms would enable
straight-through-processing by use of optical / image character recognition
technology. The benchmark prescriptions are collectively known as "CTS-2010
standard".
All banks providing cheque facility to their
customers have been advised to issue only 'CTS-2010' standard cheques. Cheques
not complying with CTS-2010 standards will be cleared at less frequent
intervals i.e. twice a week up to October 31, 2014 and weekly once from November 1, 2014 onwards.
15. What is the prescription relating to alterations / corrections
on cheque forms?
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 by
customers. 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. It is not applicable to cheques cleared under other clearing arrangements
for the present.
16. What are the precautions required to be taken by the banks /
customers to avoid frauds?
Banks /
Customers should use "CTS 2010" cheques which are not only image
friendly but also have more security features. Customers may request/insist their banks for cheque
forms that are compliant with the "CTS 2010" standard. They should
preferably use image-friendly coloured inks while writing cheques and avoid any
alterations / corrections thereon. Preferably, a new cheque leaf may be used in
the event of any alterations / corrections as the cheque may be cleared through
image based clearing system as enumerated in 15 above. Banks should exercise
care while affixing stamps on the cheque forms, so that it does not interfere
with the material portions such as date, payee’s name, amount and signature.
The use of rubber stamps, etc, should not overshadow the clear appearance of
these basic features in image. It is necessary to ensure that all essential
elements of a cheque are captured in an
image during the scanning process and banks / customers have to exercise
appropriate care in this regard.
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