CHEQUE TRUNCATION SYSTEM IN INDIA
Essential for All Upcoming Bank Exams
Reserve Bank of India (RBI) come up with a new idea that is Cheque Truncation System (CTS). It is a Check Clearing System, which is increment the Payments Systems area. In this system bank branch will not send the paper cheque to the clearing house. It is an electronic image of the cheque is sent along with the relevant information like the date of presentation, MICR fields, presenting banks etc.
Under Section 6 of Negotiable Instrument Act, 1881 the physical image of a truncated cheque and electronic cheques are recognized equal to a paper cheque.
Method of Truncation:
The truncation can be done by using the MICR data or by use of the image processing.
Use of MICR Data –
The entire MICR code line can be captured electronically. The electronic information can be exchanged with other banks for clearing purpose.
Imparting uniqueness of the cheque to the image –
Image carries digital signature and physical endorsement of the presenting bank in a prescribed manner.
Use of image processing –
Both sides of the cheque are scanned and the image is stored in the digital format. The paper cheque is shifted to some off-site storage and the image shall be used.
Process flow of truncation:
- The presenting bank captures the data and images of the cheques using their Capture System.
- The captured images and data are sent to the Central Clearing House (CH) for transmission to drawee banks. For this, RBI provides to banks the Clearing House Interface (CHI) software. It enables the banks to connect and transmit data in a secure way and with non-repudiation to CH.
- CH processes the data and arrives at the settlement figure for the banks and sends the required data to payee or drawee banks for processing at their end.
- The drawee or payee banks use the same CHI for receiving the data and images from CH. The drawee bank Capture System processes the inward data and images and generates the return file for unpaid instruments.
Criteria of participate in CTS:
The criteria for banks participating on CTs are –
- Membership of the Indian Financial Network.
- Membership of the Clearing House.
Infrastructure requirement –
- The infrastructure required for CTS from banks’ and are –
- Hardware and Software for the CTS application.
- Connectivity from the bank gateway to the clearing house.
Benefits of Cheque Truncation:
- Reducing scope for clearing related frauds.
- Speeding up collection of cheques.
- Eliminating logistics problems.
- Enhancing Customer Service.
- Minimizing cost of collection of cheques.
- Reducing reconciliation problems.
Preservation of Truncated Cheques:
It would be obligatory for presenting bank to warehouse the physical instruments for prescribed statutory period. A customer can get a paper instrument back from the presenting bank through the drawee bank.