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 without involving any physical exchange or movement of the financial instrument.

As the term proposes, truncation is the process of discontinuing the flow of the physical cheque in its way of clearing. Instead of this an electronic image of the cheque is transferred with vital data.

CTS is expected to be a great step towards “Digital India” & result in better customer experience. Hence, Reserve Bank of India (RBI) will be introducing pan-India CTS by Sept 2020 to make cheque clearing safer, faster.

PARTIES INVOLVED IN CTS

The three parties involved in this system are –

  1. PRESENTING BANK – The bank where the payee holds an account is called as presenting bank .
  2. DRAWEE BANK – Drawee bank is that bank which represents the payer and is liable to pay on his/her behalf.
  3. CLEARING HOUSE – The Clearing house acts as an intermediary between the Drawee & Presenting bank to ensure effortless negotiation of cheque transactions.

PROCESS OF CTS

The step wise step process involved in this system is as below-

  • First, an electronic image of the cheque is captured by the presenting bank (collecting bank) through a‘Capture System’ .
  • The presenting bank then sends this data in an encrypted format to the ‘Clearing House’, from where it will be sent to the paying bank.
  • The cheque-related data is transmitted between the collecting and paying bank through a Clearing House Interface.
  • The next step is ‘Presentation Clearing’, which involves the process of data reading. After which, the data will be sent to the concerned paying bank.
  • After the successful execution of the presentation clearing and the return clearing session, i.e. after payment processing or returning of data, the process completes.

BENEFITS OF CHEQUE TRUNCATION SYSTEM

CTS System offers numerous benefits to banks which are listed below :-

  • It provides quicker clearance of cheques
  • Since the data is stored in the electronic form, it can be conveniently retrieved whenever required.
  • This system will result in reduction in operational risk and risks associated with paper clearing
  • The physical transfer of the paper instruments from one place to another involves specific cost which has been eliminated by the use of CTS.
  • There are no extra charges levied for the collection of cheques drawn on a bank located within the grid, further providing no geographical restrictions.

 

Thus, in simple words , Cheque Truncation System (CTS) was introduced by the Reserve Bank of India (RBI) for faster clearing of cheques. This system is a move in the right direction and will ensure efficiency, security, transparency and faster credit of the funds which will benefit both the customer and the bank.

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