With a view to expedite clearance of cheques, the Reserve Bank of India on Friday announced bringing all bank branches across the country under the Cheque Truncation System (CTS) from September 2021. Till now, CTS was only operational in major clearing houses.
About 18,000 bank branches are still outside any formal clearing arrangement, the RBI said in its statement on Development and Regulatory Policies. It is now proposed to bring all these branches under CTS clearing by September 2021, it added.
With this measure, all bank branches in the country would be covered under the CTS. This will enhance customer convenience and bring in operational efficiency to the paper-based clearing system.
What is Cheque Truncation System (CTS)?
According to the RBI website, “CTS 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 paying bank branch. In its place an electronic image of the cheque is transmitted to the paying branch through the clearing house, along with relevant information like data on the MICR band, date of presentation, presenting bank, etc.”
This way CTS eliminates the need to move the physical instruments across bank branches, other than in exceptional circumstances for clearing purposes. This further removes 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.
The benefits of CTS to customers of banks
The electronic movement of cheque images can facilitate a 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 into a nation-wide standard clearing system with uniform processes and practices.
This way CTS makes the entire activity of cheque processing and clearing faster. RBI states the following benefits of CTS below:
- 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
- No collection charges for collection of a cheque drawn on a bank located within the grid.
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, as per RBI.