Cheque Truncation System

Cheque truncation is a system for cheque clearing and settlement between banks that are based on electronic data/ images or both, without physical exchange of the instrument. Customers would deposit their cheques with their banks for collection. The collecting banks would scan the images of the cheques and send them to RBI. The physical instruments would remain with the collecting bank branches or the centralized clearing department.

Need for CTS

In India, the RBI has implemented inter-bank and customer payments online in the form of

RTGS and NEFT. However, cheques remain a prominent mode of payment in the country. Physical cheques account for 75% to 80% of all transactions. Therefore, the RBI has decided to focus on improving the efficiency of the cheque clearing cycle. Therefore, offering Cheque Truncation System (CTS) is an alternative. CTS also decreases operational risks in banking operations as clearing is a highly fraud-prone operation. This explains CTS from the regulators' perspective.

Benefits of CTS

The benefits of Cheque Truncation System are as follows.

Customer Service
Operational Benefit
Commercial Benefit
Fraud Prevention Mechanism Provided

Customer Service

An extended cut off time for acceptance of Customer Cheques by banks.
Information can be easily retrieved.
Clearing timelines will be reduced.

Operational Benefit

There is no requirement for MICR amount encode.
Elimination of reconciliation difference - MICR and Image data travel together.
There are no possibilities of cheques being lost/ tampered/ pilfered.
There are no risks of any manipulation of data and image during transit.
CTS 2010 standards are leading to enhanced security and automation.

Commercial Benefit

The costs involved in a paper movement will be eliminated.
Grid implementation will be permitted for better liquidy management for banks.

Fraud Prevention Mechanism Provided

Manipulation of data and image during transit will be prevented by digital signature/ encryption.
CTS 2010 standards lead to enhanced security.
MICR rejects repair flag.

Magnetic Ink Character Recognition

Due to an increase in the number of cheques, the banks have established the Magnetic Ink Character Recognition (MICR) format that is used in sorting the cheques. These are machine-readable codes that are added at the bottom of every cheque leaf that helps in branch-wise sorting of cheques for smooth delivery to the respective banks from where it is drawn.

Facilitation of Cheque Truncation

RBI's services include system development and installation at the clearinghouse, interfaces at the bank's end, network, handholding, awareness propagation and training.

Participants in CTS

The eligibility criteria for banks to participate in the Cheque Truncation System are

Membership of the clearinghouse in NCR.
Membership of the Indian Financial Network (INFINET).

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Frequently Asked Questions

Common questions about Cheque Truncation System in India.

The Cheque Truncation System (CTS) is a system for cheque clearing and settlement between banks based on electronic data/images or both, without the physical exchange of the cheque instrument. Banks scan the cheque images and send them to the Reserve Bank of India (RBI) electronically, while the physical cheques remain with the collecting bank branches or the centralized clearing department.

The RBI implemented CTS to improve the efficiency of the cheque clearing cycle in India. Even though online payment systems like RTGS and NEFT exist, physical cheques still account for 75% to 80% of all transactions in the country. CTS aims to reduce operational risks and enhance security in the highly fraud-prone cheque clearing process.

CTS offers customers extended cut-off times for depositing cheques with banks, easy retrieval of information, and reduced clearing timelines. Customers can expect faster and more efficient cheque clearance through the electronic system.

CTS eliminates the need for MICR (Magnetic Ink Character Recognition) amount encoding on cheques, as the MICR and image data travel together. This prevents reconciliation differences and reduces the risks of cheques being lost, tampered with, or pilfered during physical transit. CTS 2010 standards also enhance security and automation.

CTS eliminates the costs involved in the physical movement of cheques between banks. Additionally, grid implementation allows better liquidity management for banks due to the faster clearance of cheques.

CTS prevents manipulation of data and images during transit by using digital signatures and encryption. The CTS 2010 standards lead to enhanced security, and the MICR rejects repair flag helps identify potential fraudulent activities.

MICR (Magnetic Ink Character Recognition) is a machine-readable code added at the bottom of every cheque leaf to facilitate branch-wise sorting of cheques for smooth delivery to the respective banks. While CTS eliminates the need for MICR amount encoding, the MICR codes are still used for identifying and routing cheques.

The RBI's services include system development and installation at the clearinghouse, interfaces at the bank's end, network setup, handholding, awareness propagation, and training for CTS implementation.

To participate in CTS, banks must be members of the clearinghouse in the National Capital Region (NCR) and members of the Indian Financial Network (INFINET).

CTS improves customer service by allowing banks to extend the cut-off time for accepting customer cheques, enabling easy retrieval of information, and reducing clearing timelines. Customers can expect faster and more efficient cheque clearance through the electronic system.