Cheque Truncation System – Things you need to know

Dear Aspirants

Today we are presenting an article on Cheque Truncation System. We hope this article will help in your preparation.

Cheques represent a significant segment of payment instruments in India. In order to ensure speedy clearance of cheques “Cheque Truncation System” was introduced in the year 2010.

CTS-2010 is a benchmark for standardization of cheques issued by banks across the country. The main feature of CTS-2010 cheques is that a cheque can be cleared electronically.

It is defined in section 6 of the Negotiable Instruments Act 1881.

Cheque Truncation is one of the major innovations in cheque clearing after the Magnetic Ink Character Recognition (MICR) cheques which were introduced in 1986.

Cheque truncation is a system of clearing and settlement of cheques based on electronic images. This form of clearing does not involve any physical exchange of cheques. CTS take care of the needs of future electronic transactions.

Need for CTS:

Though MICR technology helped improve efficiency in cheque handling, clearing is not very speedy as cheques have to be physically transported from the collecting branch of a bank to the drawee bank branch.

Cheque Truncation System Working: Under CTS, instead of the physical movement of the cheque, an electronic image of the cheque is transmitted to the drawee branch/bank.

Along with the electronic image, certain key relevant information is also transmitted, such as date of presentation, presenting bank details, data on the MICR band. And the presenting bank retains the physical cheque for 10 years.

Salient features of CTS:

1. Cheque printer details: This is printed on the extreme left-hand side of the cheque. The printer details along with the words ‘CTS-2010’ is mentioned along with the area where you tear off the leaf from the chequebook.

2. Rupee symbol: The new symbol of the Indian rupee is printed beside the area where the amount in figures needs to be written.

3. Details of the bank and its logo: The bank details and its logo are printed on the face of the cheque. However, it is printed in invisible ink.

4. Signature space indicator: The words ‘please sign above’ are mentioned indicating the space where you will need to sign the cheque.

5. VOID pantograph: This is a wavelike design, which is visible to the naked eye and seen below the area where the account number is printed.

Specifications of the electronic image:

1. Front Grey Scale

2. Front Black & White

3. Reverse Black & White

A new approach to CTS implementation: The new approach to enhance the CTS implementation pan India is the grid-based approach.

Under this approach, the entire cheque volume in the country which was earlier cleared through 66 MICR Cheque Processing locations is united into the three grids inNew Delhi, Chennai and Mumbai. Each grid provides processing and clearing services to all the banks under its respective jurisdiction.

Benefits of Cheque Truncation System:

1. The CTS is more advanced and more secure.
2. It provides faster clearance of cheques as local cheques are cleared on the same day as the cheque is presented to the clearinghouse, while intercity cheques are cleared the next day.
3. It reduces reconciliation and clearing frauds.
4. It provides no geographical restrictions.
5. It reduces operational risk and risks associated with paper clearing.
6. There are no extra charges levied for the collection of cheques drawn on a bank located within the grid.

International experience of CTS: Denmark and Belgium are pioneers in CTS. They adopted complete cheque truncation system more than two decades ago. Sweden is the country that has achieved complete truncation where all the cheques can be presented and encashed at any branch irrespective of the bank on which they are drawn.

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