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What is Cheque Truncation System and how it benefits you?

Two weeks ago, RBI said that banks will have to ensure that all their branches will have to participate in image-based CTS by 30 September 2021 (Mint)Premium
Two weeks ago, RBI said that banks will have to ensure that all their branches will have to participate in image-based CTS by 30 September 2021 (Mint)

  • Currently, the CTS process is operational at major clearinghouses of the country but not across all bank branches
  • CTS cheques have more security features such as watermarks and bank’s logo printed using special ink that’s visible only under UV scanners

Cheque Truncation System (CTS) is a process of clearing cheques electronically rather than processing the physical cheque by the presenting bank en-route to the paying bank branch. It is a step undertaken by the Reserve Bank of India (RBI) for quicker cheque clearance.

Even though major products are being offered in the form of RTGS (real-time gross settlement) and NEFT (national electronic funds transfer), that can enable inter-bank and customer payments online and in near-real time, cheques, on the other hand, continue to be the prominent mode of payments in the country and that is the reason why RBI has decided to focus on improving the efficiency of the cheque clearing cycle.

Two weeks ago, RBI said that banks will have to ensure that all their branches will have to participate in image-based CTS by 30 September 2021. Currently, the CTS process is operational at major clearinghouses of the country but not across all bank branches.

Once all bank branches in the country will get covered under the CTS. It will enhance customer convenience and bring operational efficiency to the paper-based clearing system.

Further, in addition to operational efficiency, CTS also offers various other benefits to banks as well as customers, including human resource rationalisation, business process re-engineering, cost-effectiveness, adoption of the latest technology, etc.

“Since there is no physical movement of cheques under CTS, the cost of collection of cheques comes down. Moreover, logistics-related issues are removed and loss of instruments in transit is no longer a problem. This brings down operational risk and risks associated with paper clearing and increases operational efficiency," said Adhil Shetty, CEO, BankBazaar.com.

“CTS has also led to the consolidation of multiple clearing locations managed by different banks with varying service levels into a nation-wide standard clearing system with uniform processes and practices. This has done away with the need for numerous clearing house locations and minimised the investment in MICR machines and the related AMC costs. Consequently, there has been a reduction in operational overhead on the cost front and elimination of clearing differences and reconciliation issues on the inter-operational front. For the customers, this translates into faster, better, and seamless services at lower charges," he added.

Besides, CTS cheques also have more security features such as watermarks and bank’s logo printed using special ink that’s visible only under UV scanners. These security features ensure uniformity across cheques issued by the banks and help better scrutiny of deposited cheques, thereby reducing frauds.

The RBI's CTS process across the whole country will be a great move towards Digital India. Where RTGS, NEFT and even IMPS were the game changers for the banking sector mostly in urban areas, cheques still remain one of the prominent modes of payments since it caters the rural and urban India both.

ABOUT THE AUTHOR

Navneet Dubey

Navneet Dubey is a personal finance writer and artist. Over the past decade, he has written feature stories on insurance, financial planning, lending and borrowing.
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