Cheque Truncation System (CTS) – Important Points and Frequently Asked Questions (FAQs) on Cheque Truncation System.
What is Cheque Truncation?
Cheque Truncation is settlement of clearing transactions on the basis of images and electronic data without the physical movement of the instruments. The Clearing Cheque is truncated at the Presenting bank itself.
A cheque truncation system allows a Financial Institution to truncate cheques at the “Point of Capture” by providing the capabilities of presenting chques to the “paying bank” electronically and process return cheques electronically.
CTS 2010 is the standard prescribed by the RBI for cheques issued by all banks in the country.
Why Cheque Truncation System in India?
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 benefiting the system as a whole.
Cheques are still the prominent mode of payments in the country and Reserve Bank of India has 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 rationalization, 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 RBI in the Payments Systems area.
Cheque Truncation – Conceptual Diagram:
Cheque Truncation System (CTS) Process Flow:
Benefits of Cheque Truncation System:
- Better Customer Service – Enhanced Customer Window
- T+0 for Local Clearing and T + 1 for inter-city clearing.
- Elimination of Float – Incentive to shift to Credit Push payments.
- The jurisdiction of Clearing House can be extended to the entire country – No
- Geographical Dependence
- Operational Efficiency will benefit the bottom lines of banks – Local Clearing activity is a high cost no revenue activity.
- Minimises Transaction Costs.
- Reduces operational risk by securing the transmission route.
Whether the Cheque Truncation System has legal sanction?
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.
For more updates on Cheque Truncation System please refer the website of Reserve Bank of India.