What is it?
Cheque truncation system (CTS) is a process that will enable banks to stop the movement of a physical cheque from the presenting bank, where it is deposited, to the drawee branch, from where it was issued. Under CTS, an electronic image of the cheque is sent to the drawee branch along with the information required to process the request such as the magnetic ink character recognition (MICR) code, date of presentation and the presenting bank details.
The cheque may or may not be truncated, held back at the point of presentation. Though currently in India cheques have to travel to a hub where cheques from surrounding regions are collected and truncated, it will also be possible to truncate cheques at the point of presentation and give a scanned copy of the cheque as a receipt.
As the cheques will not have to physically travel from the presenting bank to the drawee bank, the system will help reduce the time required to clear cheques. Currently, inter-city cheques take about three-seven days to get cleared. Once this system is rolled out on a pan-India basis it will take just about a day, or maximum two days, to clear any cheque.
The system will also help banks shorten their settlement cycles and remove the possibility of damage or loss to a cheque while in transit.
Does the process change for you?
The clearing process remains the same for customers. However, they need to bear in mind a few things while writing out a cheque. The ink used to fill the cheque should be dark and image-friendly to ensure that the signature gets captured in the image. It is also important to remember to fill in all the details correctly. Unlike the older system, cheques with alterations on it will not be accepted for clearing to reduce the risk of fraud. So for any changes, you will have to fill in a new leaf.
The system went live in the National Capital Region on 1 February 2008 and from 1 July 2009 the older system was completely discontinued. Chennai has been identified for the roll out of the second phase. Once this grid becomes fully operational, it will cover about 17 MICR centres across Karnataka, Kerala and Tamil Nadu. The decision for extending CTS to other centres in the country will be based on the experience from the grid approach at Chennai. There is no definite timeline for the national roll out yet.