CHEQUE TRUNCATION

Business Opportunities

BY
M.P.Kolwadkar
M.Com,M.B.A.,JAIIB
GDC&A,DCM,DCFA,
CTFC (NABARD)
 What is CTS?

It is clearing of MICR cheques based on MICR lines

and Images
Payment processing happens on the basis of Images
Settlement happens on the basis of MICR data
GRID CTS means expanding CTS across Clearing
houses in the region e.g. Western GRID CTS will
cover initially all Clearing Houses of Maharashtra,
Madhya Pradesh, Gujrat, Goa & Chattisgarh
 CHEQUE TRUNCATION Benefits

Better Customer Service- Extended hours of Clearing

GRID- Extended boundaries of clearing house

Process Improvement- Elimination of Clearing

differences (LBNR/RBNL)
Cost Reduction

Ease of operation

High security- Images are moved through highly

secured mechanism
De-risking Clearing House- Elimination of batch
processing
Single settlement- Improves liquidity management
 CHEQUE TRUNCATION Business
Opportunities

Grey scale Technology will be deployed for imaging

(In photography and computing, a grayscale or greyscale digital image is
an image in which the value of each pixel is a single sample, that is, it
carries only intensity information. Images of this sort, also known as black-
and-white, are composed exclusively of shades of gray, varying from black
at the weakest intensity to white at the strongest.)
Images will be preserved for 8 years
A Centralized agency per clearing location will act as an
image warehouse for the Banks
Public key infrastructure will be deployed to protect
image and data flow over the Network
 CHEQUE TRUNCATION Business
Opportunities

Movement of the physical instrument is

curtailed
Image of the payment instrument is
captured along with MICR data
simultaneously
Clearing Process completed based on
Electronic data and image of the Cheques
Outward Clearing Dos
Verify cheques for alterations except date
Verify new cheques vis--vis CTS 2010
standards
Verify the physical genuineness of the
cheque
Process the cheques in a phased manner
Ensure balancing at the deposit level
Complete clearing difference on daily basis
Outward Clearing Donts
Dont process a materially altered cheque
Dont wait for the last minute to process
the clearing instruments
Dont process any suspicious looking
instrument without thorough checking
Ensure internal controls to manage paid
instruments and duplicate files.
Dont neglect balancing & reconciliation
activity
Inward Clearing Dos
Monitor inward exchange files on regular
basis.
Do the technical scrutiny of the images
If the images are not clear then ask for
physical cheques
Ensure all images and physical cheques
(incase of P2F- Paper to Follow)
Complete the reconciliation process.
Inward Clearing Donts

Dont honor any cheque without

technical scrutiny and UV checking
Dont pass any instrument where
the image is not clear
Dont leave the premises of NPCI
without collecting all the physical
instruments for P2F process.
 GRID CTS
GRID CTS means expanding CTS across Clearing
Houses in the region.
All banks at various locations will be participating in
respective GRID CTS through Direct/ Indirect mode.
Existing branch/ service branch of different cities
need to be connected @ Mumbai Clearing House
Interface (through banks internal network)
GRID CTS will have single settlement at RBI, DAD,
Mumbai
P2F will be exchanged at respective clearing house
location centers only.
CTS Cheque
Business Opportunities - Banks

Improved handling of post-dated

cheques deposited by the customer,
as the images can be scanned and
stored and the system can
automatically process the scanned
images on the due date.
Improved business intelligence
systems can be put in place.
Business Opportunities - Banks
Introduction of new payment system
products like e-cheques
Better funds management
Reduction in Transaction cost
Better management of space and
manpower
Improved regulatory compliance.
Improved Management Information
Systems which will facilitate better
decision making.
Business Opportunities -
Customer

Faster realization of Funds

Better funds management
Can avoid visit to the Branch as
more outlets will be available for
depositing cheques for clearing, at
convenient locations.
Business Opportunities -
Vendors
Upgrade of Technology opens up new
business opportunities for vendors and
solution providers.
Can improve the Brand image of their
products by providing improved
functionalities for image capture, storage
and retrieval
Scope for improvement in processing
capabilities , especially scanners and
servers
Point of Truncation

Originating Branch
ATM / Customer Location
An identified Branch for a Cluster of
Branches
Service Bureau
Service Branch of Originating Bank
Factors to decide point of
Truncation
Infrastructure required
Capital Cost for set up
Recurring Costs
Distance of the Originating branches from
the point of truncation
Technology used
Volume of Cheques / images that will be
processed
Facilities available for storing the cheques
& images and their retrieval
Infrastructure Required- Point of
Truncation

PC with printer
Scanner
Network
The configuration of scanner will
depend on the volume of Cheques (
Documents per minute) -
Approximate capacity 30
documents per minute (dpm)
Truncation

Capacity of scanner - Documents

per minute

Storage of Images ( Size of 3

prescribed images along with Digital
Signature 75 KB )
Front Gray Scale, Front Black &
White and Reverse Black and White
 Business Process Reengineering
System and Procedures are to be re-looked to
enable the Banks to work in electronic
cheque processing environment
Necessary guidelines to be issued to the
Branches to enable them to pass the cheque
based on images instead of physical cheques
Process of return of cheques and its
intimation is to be devised.
Responsibility of genuineness of the image of
the cheque is to be fixed since the drawee
Bank will receive only the image of the
cheque and not the physical cheque
 As per amended NI Act, 1881 the
Presenting Bank will ensure Prima facie
security of various mandatory fields of the
cheque like date, availability of signature
and chemical/material alteration
Storage of physical cheque As per
amended NI Act, drawee Bank can requisite
for physical cheques in case of need.
System will require storage of cheque as
per Banking Companies preservation of
Records Rules, 1985. Point of storage of
physical cheques is to be decided
 Legal Issues involved
Amendments made in Negotiable
Instrument Act, Information
Technology Act
Onus of verifying the Genuineness
of the Cheque will shift to the stage
at which it is presented
KYC norms are to be meticulously
complied by the Banks, as
circulated by RBI
 Legal Issues involved

Drawee Bank will continue to verify

the signature and availability of
funds
Drawee Bank will have the right to
seek further information on the
veracity/ genuineness of the cheque
Drawee Bank can also seek the
physical instrument for verification
Why Image Bureaus
Smaller banks will not have sufficient
volume of cheques to justify capital
investment
Sufficient infrastructure may not be
available in the branch or service centre
Operational costs for maintaining the
system may be relatively high if sufficient
capacity utilization is not there.
Image Service Bureaus

Provide image capture, storage and

retrieval facilities to a group of
Banks for a fee.
High end systems are set up for
faster image capture, transmission,
storage and retrieval .
Adequate infrastructure put in place
to manage the Bureau.
Business Benefits for set up of
Image Service Bureaus

Source of Revenue
Economy of Scale
Improved Technology can be used
as High end systems can be put in
place.