What is a Cheque Truncation System?

Cheque Truncation System (CTS) is a cheque clearing

system undertaken by the Reserve Bank of India (RBI) for faster clearing of cheques. As the
name suggests, truncation is the process of stopping the flow of the physical cheque in its
way of clearing. In its place an electronic image of the cheque is transmitted with key
important data.
Why CTS? In India, the RBI has made available inter-bank and customer payments online in
near-real time in the form of RTGS and NEFT. However, cheques still remain a prominent
mode of payment in the country. Physical cheques still account for 75% to 80% of all
transactions. So, the RBI has decided to focus on improving efficiency of the cheque clearing
cycle. Thus, offering CTS is an alternative. CTS also reduces operational risks in banking
operations as clearing is a highly fraud-prone operation. This explains CTS from the
regulators perspective
Benefits to Account Holders Since there is no physical movement of cheques, there is no fear
of loss of cheque in transit. Usage of CTS cheques also means quicker clearance, shorter
clearing cycle and speedier credit of the amount to your account. Depending on whether the
cheque is local or outstation, the cheque can get cleared on the same day or within 24 hours.
For banks the benefits from CTS could be summarized as follows:
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

Clearing process for non CTC 2010 cheques

The Payee would deposit the cheque is his/her bank. If the payee or beneficiary of
cheque has an account in the same bank in the same city the funds are credited into
his account through internal arrangement of the bank

If the beneficiary has an account with any other bank in the same or in any other city,
then his banker would ensure that funds are collected from the payers banker through
a clearing house. A clearing house is an association of banks that facilitates payments
through cheques between different bank branches within a city / place. There are more
than 1000 clearing houses operating all over the country facilitating cheque payments.
These are managed by the RBI, State Bank of India and other public sector banks. To
identify the paying bank, the clearing house looks at checks routing number,
MICR, the nine-digit number at the bottom of your cheque, to the right of your
account number. It identifies postal code/city and state of the origin of the cheque.


MICR of cheque

The clearing house presents paying bank with the cheque along with a payment
request to drawees bank, which checks if there are sufficient funds in the account of
drawer to pay money.

If the drawers bank decides to pay then the clearing bank proceeds to settle the
check, debiting drawers bank and crediting the payees bank for the value of the
check.The paying bank debits the amount from the drawers account.

The clearing process is shown in following picture

Cheque Clearing Process before Jan 1 2013

Time taken to clear the cheque How fast the money would be deposited into Shyams
account depends on whether the whether bank of Ram and Shyam cheques are of same city.
Based on this cheques are of two kinds:

Local Cheques - These are cheques whereby the cheque issuer bank branch and the
receiver bank branch are in the same city

Outstation Cheques - These are cheques whereby the cheque issuer bank branch and
the receiver bank branch are in different cities

Local Cheques - All Local Cheques must be cleared on a T+1 basis. i.e., If I Deposit a local
cheque into my bank account today (irrespective of which bank the cheque is drawn or
deposited) the funds must reach my account by End-Of-Day Tomorrow. Of course, this is
only if the deposit happened before the cut-off time for today. For ex: Lets say ICICI Bank
has a cut of time of 1:00 PM. So, all cheques deposited after 1:00 PM the previous day and
those deposited before 1:00 PM today are processed in one batch and sent for payment. If you
deposit your cheque after 1:00 PM, it will be processed only tomorrow and funds will be
available one day after that. Outstation Cheques Processing of Outstation Cheques
depends on location of drawees bank.

Banks in State Capitals Max 7 days

Banks in Major Cities Max 10 days

Banks in Other Locations Max 14 days

RBIs Collection of Instruments has answers to questions likeWhat happens if cheques /

instruments are lost in transit / in clearing process?, My bank refuses to accept outstation
cheques for collection. Is there any remedy?
Cheque Truncation System CTS 2010
Cheque Truncation System (CTS) or Image-based Clearing System (ICS), in India, is a
project undertaken by the Reserve Bank of India RBI, for faster clearing of cheques. CTS
is basically an online image-based cheque clearing system where cheque images are captured
at the collecting bank branch and transmitted electronically. Truncation means, stopping the
flow of the physical cheques issued by a drawer to the drawee branch. The physical
instrument is truncated at some point en-route to the drawee branch and an electronic image
of the cheque is sent to the drawee branch along with the relevant information like the MICR
fields, date of presentation, presenting banks etc. So the process now becomes:

In CTS, the presenting bank (or its branch) captures the data (on the MICR band) and
the images of a cheque using their Capture System (comprising of a scanner, core
banking or other application

The collecting bank (presenting bank) sends the data and captured images duly signed
and encrypted to the central processing location (Clearing House) for onward
transmission to the paying bank (destination or drawee bank). For the purpose of
participation the presenting and drawee banks are provided with an interface /
gateway called the Clearing House Interface (CHI) that enables them to connect and
transmit data and images in a secure and safe manner to the Clearing House (CH).

The Clearing House processes the data, arrives at the settlement figure and routes the
images and requisite data to the drawee banks. This is called the presentation clearing.
The drawee banks through their CHIs receive the images and data from the Clearing
House for payment processing. The drawee CHIs also generate the return file for
unpaid instruments.

Image Clearing System

For customers clearing process of CTS 2010 is no different from the use of traditional
clearing infrastructure for clearing paper cheques. Customers continue to use cheques as
at present, except to :

Use image-friendly-coloured-inks while writing the cheques

Avoid any alterations or corrections thereon. For any change in the payees name,
amount in figures or in words, fresh cheque leaves should be used by customers, as
this will facilitate smooth passage through image based clearing system.

As images of cheques (and not the physical cheques) alone need to move in CTS:

It is possible for the removal of the restriction of geographical jurisdiction normally

associated with the paper cheque clearing. Hence cheques would be multi-city.

This would result in effective reduction in the time required for payment of cheques,
the associated cost of transit and delays in processing, etc.

Cheque truncation eliminates the need to move the physical instruments across branches,
except in exceptional circumstances, thus speeding up the process of collection or realization
of cheques. The Reserve Bank had implemented CTS in the National Capital Region (NCR),
New Delhi and Chennai with effect from February 1, 2008 and September 24, 2011. After
migration of the entire cheque volume from MICR system to CTS, , the traditional MICRbased cheque processing has been discontinued in these two locations. Based on the
advantages realised by the stakeholders and the experienced gained from the roll-out in these
centres, it was decided to operationalise CTS across the country by Jan 1 2013. For more
details read RBIs FAQ on Cheque Truncation System
Cheques for CTS 2010

All types of cheques can be presented for clearing through CTS. But to achieve
standardisation of cheques issued by banks across the country and to reduce cheque frauds set
of benchmarks called as CTS-2010 standard are introduced.These include provision of
mandatory minimum security features on cheque forms like quality of paper, watermark,
banks logo in invisible ink, void pantograph, etc., and standardisation of field placements on
cheques. As shown in picture below (Ref: Economic Times Check your cheque status)

Cheque features under CTS 2010

Sample old and new(CTS 2010 compliant) cheques issued by State Bank of India (SBI) are
shown below

State Bank of India Cheque before CTS 2010

1. Branch address with IFSC code printed top of the cheque
2. Date in dd/mm/yyyy format with boxes
3. Printers name with CTS-2010 in left side of cheque

4. A pantograph which shows VOID/COPY while taking photocopy of the cheque below
the account number
5. New rupee symbol instead of bilingual format
6. Please sign above is mentioned on bottom right of the cheque
7. Watermark CTS INDIA to be visible cheque is held against any light.
8. Ultra Violet logo of Bank printed at upper left corner of cheque to be visible in UV
lamps

SBI cheque with CTC 2010 compliance

Sample old and new(CTS 2010 compilant) cheques issued by HDFC bank are shown below

HDFC bank cheque before CTS 2010

HDFC bank cheque for CTS 2010

HDFC bank cheque for CTS 2010

Krishna has collected CTS-2010 Standard and Old Bank Cheques of India of Canara Bank,
IndusLand Bank etc.
How does CTS 2010 affect customers

If you have issued post-dated cheques (PDCs)(say for your home or auto loan EMIs),
you will have to issue fresh cheques.

If you have opted for the ECS (electronic clearing system) mode the new system will
not impact you.

For issuing cheque after Mar 31 2013 you need cheques which are CTS-2010
compliant.

Banks have stopped accepting non CTC 2010 cheques after Dec 31, 2013. Related
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