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All About Cheque Truncation System

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CTS 2010 is the standard prescribed by the RBI recently for cheques issued by all banks in the country. CTS stands for Cheque Truncation System and essentially means that instead of sending the cheque in physical form by the collecting bank to the paying bank, an electronic image of the cheque is transmitted to the drawee branch for payment through the clearing house, thereby eliminating the cumbersome physical presentation of the cheque to the paying bank, thus saving in time and costs involved in traditional clearing system.

This was introduced as a pilot project in the National Capital Region in 2008 and in Chennai from September 2011. Based on the experience gained and the benefits that will accrue to both banks and customers, it is decided to operationalise CTS across the country.

 

Benefits of CTS to bank customers

CTS thus brings elegance to the entire activity of cheque processing and clearing. 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
  • No collection charges for collection of cheque drawn on a bank located within the grid.

 

 

CTS Clearing Cycle

Step 1 – The Collecting bank (or branch) captures the data (on MICR band), and the images of a cheque using their Capture System (comprising scanner, core banking or other application)

To ensure security, safety and non-repudiation of data/images, end-to-end Public Key Infrastructure (PKI) has been implemented in CTS.

Step 2 – The Collecting Bank sends the data and captured images duly signed and encrypted to the central processing location (Clearing House).
The Clearing House processes the data, and arrives at the settlement figure and transfers the images and requisite data to the Paying bank. This is known as presentation clearing.
Step 3 – The Paying Bank receives the images and data from the Clearing House for payment processing. The paying bank generates the return file for unpaid instruments. The return file/data are then sent to the Clearing House.
Step 4 – The return file/data is processed by the Clearing House in the return clearing session and in the same way as presentation clearing session. Then these are provided to the Collecting bank.
 
Step 5 – The Collecting bank processes the data received from Clearing House. The whole process is known as Clearing Cycle.
The Clearing Cycle is treated as complete once the Presentation clearing and the associated Return clearing sessions are successfully processed.

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