Cheque Truncation System (CTS)

1. Introduction

RBI is considering replacement of the existing system of settlement of payment on

the basis of physical cheques by a new procedure called “ Cheque Truncation
System” (CTS). It is an online image-based cheque clearing system where cheque
images and Magnetic Ink Character Recognition (MICR) data are captured at the
collecting bank branch and transmitted electronically eliminating the actual cheque
movement.

2. Security.

CTS is protected by a comprehensive PKI-based security architecture which

incorporates basic security and authentication controls such as dual access control,
user ID and passwords with cryptobox and smart card interfaces.

3. Benefits.

Realisation of proceeds of cheque possible within the same day.

Data storage and retrieval becomes easy.
Minimizes risks and introduce a secured cheque clearing system.
Will result in cost savings due to lower cost in physical movement of cheques.
Minimizing bottlenecks and delays between presentation and realization time.
Provides shorter clearing cycles and a centralized image archival system.

4. Impact on Government Departments.

Integration of CTS with the existing system very easy.

No change in the existing method of issue of cheques.
No expenditure required to be made by Government Departments.
Department will continue to get paid scrolls.
Linking and pairing of cheques with Schedule-III will be done on the basis of online
cheques images.
If required, an image replacement document can be printed by Department itself.
Government Departments may have to re-engineer their Codes and Manuals
governing settlement of their cheques through legally valid electronic images instead
of physical cheques.
Modalities for post payment reconciliation need to be worked out.

5. Implementation.

CTS is Initially to be taken up as a Pilot Project in NCR before extending to the rest
of the country.
National informatics Centre (NIC) would develop software in consultation with RBI
and CGA by September 2006.
NIC would study and suggest mode of transmission of data from banks and ensure
security system for tamper free data transfer.
NIC would provide a uniform procedure for adoption by Government Departments for
archiving the cheque images.

http://cgda.nic.in/accounts/cts.html
Cheque Truncation - A New Technology
Initiative in India
Posted: Aug 11th, 2009 | Comments: 0 | Views: 62 |
Ads by Google

Banking
Your Business Can Save Time & Money With a Business Checking Account.
www.BankofAmerica.com/SmallBusiness

Free Technology Research

Browse Our Technology & IT Articles Online. Subscribe to Weekly Report!
www.ITBusinessEdge.com

Open a HSBC Savings A/c

And Avail Free Net Banking Services & More. Apply Now!
www.hsbc.co.in/savings

Payment terminals SFOUR

Self-service terminals solution for mobile and banking payments
www.sfour.ru

Banking Software
Latest technology Java/J2EE Complete Banking Solutions
www.lasersoft.co.in
Syndicate this Article Copy to clipboard

Over the last decade, Indian banking has evolved over the traditional way of banking
with use of innovative technologies. As a result, user experience has improved
significantly. It is widely acknowledged by industry experts that technology can play a
larger role in Indian banking, and one area that certainly craves for attention is cheque
processing.

Though under the Reserve Bank of India (RBI) guidance, the e-banking systems has been
implemented by banks that allows end-users to take advantage of online fund transfer,
RTGS, e-cheques etc, India continues to write lot of cheques every day. People still
believe in the physical instrument rather than on electronic media. The estimated cheques
written in India are around 1.2 billion per year. This includes local, intercity, interstate,
and intra state cheques. If we consider the whole cheque clearing process, it is obvious
that these are not very effective. It takes about 15 days for inter-city cheque clearance.
Apart from time consuming process, there are overhead costs for transportation and
storage. In short, poor cheque clearing cycle reduces operational efficiency.

The Central Banks of many countries have exploited the technological innovations today
and implemented the electronic transmission of images rather than the physical
transportation of cheques for clearing. For example, the US has already implemented
Check Clearing for the 21st Century Act (or Check 21 Act).

In India, the RBI has mandated the use of pilot Cheque Truncation Project in the
National Capital Region. More than 10 banks are already processing their cheques
through the system now. Based on the experience gathered, it would consider extending
the coverage to other centers.

Cheque Truncation is the process of stopping the flow of the physical cheque issued by
a drawer to the drawee branch. The physical instrument will be truncated at some point
en-route to the drawee branch and an electronic image of the cheque would be sent to the
drawee branch along with the relevant information like the MICR fields, date of
presentation, presenting banks etc.

To wish away cheques were simply not possible so, the focus is on improving the
efficiency of the Cheque Clearing Cycle. Cheque Truncation is the alternative.
Contrary to perceptions, Cheque Truncation is a more secure system than the current
exchange of physical documents in which the cheque moves from one point to another,
thus, not only creating delays but inconvenience to the customer in case the instrument is
lost in transit or manipulated during the clearing cycle.

Some of the challenges in implementing Cheque Truncation Solution are:

1. Integration with existing large banking systems - as banks have already invested
on legacy system, it is important that the new system seamlessly integrate with the
existing system
2. Security - In any financial software, security is of prime importance. Hence,
information transmitted over electronic media should be secure enough
3. Changing the current workflow - There is often resistance to change. For any new
system to be successful, users need to support the system as it changes the
traditional way of working
4. Customer acceptance - in electronic cheque processing, merchants/customers
need not visit the bank to deposit the cheque but they can scan their cheque from
their desktop and submit for bank clearing. This calls for tremendous change in
mindset among customers to feel secure to do transactions over electronic media

Some Implementation Guidelines

1. Banks need to evaluate their existing system, as they would have already invested
good amount of money into it. So the solution they would like to implement
should be able to integrate with the existing system as well as other heterogeneous
systems with ease
2. Security of the system should be of prime importance
3. The new solution should be able to scale and meet the increasing demands from
the customers and handle the load
4. Should be able to provide software as service to customers and related institutions
 5. All systems are good only if people accept and ready to work with it. Hence,
having a governance model in place is important and the current team should be
enthusiastic enough to accept the new solution. Most companies forget this aspect,
which leads to failure of the system

Beneficiaries of Cheque Truncation

1. Banks - have a simplified system to collect all the information from their
merchants/branches, consolidate, process them and submit for clearance
2. Customers of banks - can electronically deposit large number of cheques without
fear of loss in transit. For example, LIC collects thousands of cheques every day
can deposit the cheque from its office rather than going and dropping cheques in
multiple banks
3. Bank's Branches - teller can directly scan and deposit the cheque to its head office
for clearing rather than transporting the cheque to the HO
4. Check processing centers - streamline back office operations for the banks with
greater audit and tracking
5. Users of the system - can track the status from their desktop and plan their
business or personal goals accordingly

Thus, with the implementation of cheque truncation solution, the need to move the
physical instrument across branches would not be required, except in exceptional
circumstances. This would effectively reduce the time required for payment of cheques,
the associated cost of transit and delay in processing, etc., thus speeding up the process of
collection or realization of the cheques.

Major advantages of Cheque Truncation

Cheque Truncation thus is an important efficiency enhancement initiative in the

Payments Systems area that will help financial institutions in India to increase their top
and bottom line and above all ultimate customer satisfaction. Apart from operational
efficiency, Cheque Truncation has several benefits to the banks and customers in India

• Faster fund availability

• Better reconciliation and fraud prevention
• Cost effectiveness - reduce overhead cost in cheque processing - savings in
transportation, storage of paper cheques
• Online tracking and audit of cheque status at any point of time
• Re-engineering the total receipts and payments mechanism of the customers
• Human resource rationalization - improved efficiency of bank employees

http://74.125.93.132/search?q=cache:1dY0MdnG0PkJ:www.ar
ticlesbase.com/information-technology-articles/cheque-
truncation-a-new-technology-initiative-in-india-
1117365.html+a+project+report+on+cheque+truncation&cd=3
0&hl=en&ct=clnk&gl=in