New RBI guidelines for Cheque Truncation - 1st Jan 2013
There is going to be a big change in how the Banks function come Jan 1st 2013. And all this begins with the cheque book and cheque leaves. RBI has brought forth new rules stating that the Cheque Truncation System or CTS 2010 will come into effect and will be followed by all banks across the country. All banks should use cheques that have subscribed to the rules under CTS guidelines.
Current Indian Population: 1,241,491,960 – 2011 (1.22 billion.)
There are 26 Nationalized Banks, 23 Private Sector Banks and 21 foreign banks.
- All Scheduled Commercial Banks – 166
- Regional Rural Banks – 88
- Other scheduled commercial banks – 78
- Non-Scheduled Commercial Banks – 5
No of Banks Branches in India
What is Cheque Truncation System [CTS] ?
Well, to make it simple it is a new and improved structure for cheques. It’s a set of new guidelines that will alter the way cheques are processed and cleared by the banks. Today what is happening is that the cheques are sent directly to the other banks for clearance. However, with the new Cheque Truncation System rules, banks will have to send only the digital version of the cheques to the other recipient banks. The clearance will then happen instantly or within a short duration of time.
Is CTS Legal?
With amendments in the Sections 6 and 1(4), coupled with the introduction of 81 A to the Negotiable Instruments Act, 1881, truncation of cheques is now legalized.
Benefits to Banks and Customer
• With the CTS banks can do faster clearing cycle. For example if you deposit cheque of your client you can withdraw money for the same on the same day. Banks can reduce their Turnaround time (TAT) and thus can enhance customer service and reduces complaint and less fraudulent cases.
• In the current system, banks transport all the cheques from all branches countrywide to automated clearing house (ACH) for processing. Thus with the introduction of CTS, only images will be taken and sent electronically to ACH. Thus it will improve the bank operational efficiency and give boost to bottom line as the whole process of clearing cheque is a huge cost and a low revenue activity.
• With CTS banks can have centralized image archival system which reduces the manual tasks and also leads to reduction in human error.
• Customers can do Real time tracking. Reconciliation of accounts will be much easier for all customers and it’s very secure as compared to current system. All types of cheques can be accessible for clearing as it will work in the same traditional system.
How Cheque Truncation System Work?
Some key features of CTS cheques would be
- The cheque leaf will have the phrase “please sign above this line” at the bottom right corner.
- All the CTS 2010 cheques will bear a watermark “CTS INDIA” that can be seen against the light
- A bank logo will be present on the cheque along with an Ultra Violet ink that will be visible under UV Scanners.
- The CTS 2010 enabled cheques will have no leeway for any adjustments or alterations. If any changes are to be made, the cheque needs to be cancelled and a new one issued in its place.
- The cheques will bear the words “payable at par at all branches of the bank in India” at the bottom on all the leaves
- There will be an MICR and IFSC code on the cheque
- The cheque needs to be signed with darker ink so it is visible under scanning.
Don’t worry, these are not complicated. If you read through them, you will understand it is only to make digital processing easier. And once the CTS 2010 cheques arrive, the entire banking system will change. The cheque clearance process will happen much smoother and faster. And more importantly, banks will also be going green, saving on paper.
Banks are slowly sending out letters to their customers about the new cheque format, and so before the end of the year, make sure to collect unused cheques and get them exchanged with the banks. Else, you will be stranded without a document for exchange.
What should you do?
1. Replace your Post Dated Cheques- if you have issued any post dated cheques, time to call them back in and reissue new ones. Else, the cheque will bounce and you will end up paying penalty.
2. Deposit any Old Cheques right away- cash in on all the cheques that you have, and don’t wait for time to pass.
3. Contact your bank and check with them on the new cheques and how to proceed with the existing cheque leaves with you.
How banks can participate in CTS?
There are two ways in which banks can participate
Direct Membership: Banks can take part as direct member provided they have a settlement account with settlement bank in order to place a necessary infrastructure for participating in CTS.
Indirect Membership: Banks may become sub-members / indirect members of the direct members by using the infrastructure and / or settlement services of the direct members.
Is The Infrastructure Requirement For Participating in CTS Same For All Banks?
The infrastructures necessary for banks’ to participate in CTS are connected from the bank’s gateway to the Clearing House, thus prescribed hardware and software is required for the CTS application.
RBI provides member banks with the CHI (software). Banks need to get hardware and other software such as operating system; database and a bouquet of third party software for the CHI. They also need to procure the application software for their capture systems.
The hardware requirement / sizing are based on the volume of cheques processed by banks. Based on the volume the CHI is categorised into four types and the hardware requirement is different for each category.
Check Truncation and Printing Software – by iThink Infotech
We are one of the leading software development companies in India. We have developed customize solutions for BFSI, HR and Media companies. Our Cheque Truncation System meets all the requirements of major banks and co-operative financial institutions which minimize assimilation of time and costs.
Some of the major benefits to banks,
- We have built this system in such manner that it minimizes client’s operational and training expenses.
- Provide electronic images of paper items and payment information on demand.
- Expedite clearing and settlement of payments between financial institutions
- Reduce window for fraud and improve float.
If you are banks, financial Institution or any software companies looking to customize or develop Check Truncation system feel free to contact us firstname.lastname@example.org