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What is Cheque Truncation System in India?
It is a system where there is no physical exchange of instruments. Cheque truncation is a system between clearing and settlement of cheques based on electronic images.
What is it?
Truncation is the process of stopping the movement of a physical cheque issued by a drawer with the presenting bank en-route to the drawee bank branch. An electronic image of the cheque is transmitted to the drawee branch, along with relevant information like data on the MICR band, date of presentation, presenting bank, etc.
All types of cheques can be presented for clearing through the CTS. It is no different from the use of traditional clearing infrastructure for clearing paper cheques.
How does it work?
In CTS, the presenting bank captures the data (on the MICR band) and the images of a cheque using their Capture System.
The presenting bank sends the data and captured images duly signed and encrypted to the central processing location called Clearing House for onward transmission to the paying bank or drawee bank.
The drawee banks receive the images and data from the Clearing House for payment processing.
The entire essence of CTS technology lies in the use of images of cheques for payment processing.
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.
However, cheques with alterations in material fields are not allowed to be processed under the CTS environment.
Advantages to customers
The benefits from CTS could be summarized as follows -
- Speeds up collection
- No geographical restrictions as to jurisdiction
- Operational efficiency for banks and customers alike
- Reduction in operational risk and risks associated with paper clearing
- Minimizes clearing frauds
- Minimizes cost of collection of cheques
