Important Banking Term for IBPS PO Main Exam: Cheque Truncation System (CTS)

Cheque Truncation Solution is a big milestone in the Indian banking industry. It enables cheque clearing on the same day, reducing floating time available for funds.

The online Main examination for IBPS PO/MT 2015 posts is tentatively scheduled in last week of October. Here, the banking team of jagranjosh is providing the description of important banking term asked in previous year in General Awareness section.

What is Cheque Truncation?

Cheque Truncation Solution is a big milestone in the Indian banking industry. It enables cheque clearing on the same day, reducing floating time available for funds. It enables banks to send images instead of paper cheques for clearing and settlement.  In other words, truncation is the process of stopping the flow of the physical cheque. In its place an electronic image of the cheque is transmitted to the paying branch through the clearing house, along with relevant information like data on the MICR band, date of presentation, presenting bank, etc.

Benefits of Cheque Truncation:

  • It speeds up the process of collection of cheques resulting in better service to customers,
  • reduces the scope of loss of instruments in transit,
  • lowers the cost of collection of cheques, and
  • Removes reconciliation-related and logistics-related problems, thus benefitting the system as a whole.

New approach to CTS implementation in India:

After migration of the entire cheque volume from MICR system to CTS, the traditional MICR-based cheque processing has been discontinued across the country. The new approach envisioned as part of the national roll-out 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 consolidated into the three grids in New Delhi, Chennai and Mumbai.

Each grid provides processing and clearing services to all the banks under its respective jurisdiction.

Benefits of Grid Based CTS over Speed Clearing to the customer:

Even though Speed clearing accelerates the process of cheque collection as compared to outstation cheque collection, it requires the presence of the paying bank branch in the clearing house location. In comparison, grid-based CTS, is a superior system as it encompasses a larger geographical area and the chances of paying bank not having presence in the grid location is seldom.

Under grid-based Cheque Truncation System clearing, all cheques drawn on bank branches falling within in the grid jurisdiction are treated and cleared as local cheques.

Entire process flow in CTS:

In CTS, the presenting bank (or its branch) captures the data (on the MICR band) and the images of a cheque using their Capture System (comprising of a scanner or other application) which is internal to them, and have to meet the specifications and standards prescribed for data and images.

To ensure security, safety and non-repudiation of data / images, end-to-end Public Key Infrastructure (PKI) has been implemented in CTS. As part of the requirement, the collecting bank (presenting bank) sends the data and captured images duly signed digitally and encrypted to the central processing location (Clearing House) for onward transmission to the paying bank (destination or drawee bank). For the purpose of participation the presenting and paying banks are provided with an interface / gateway called the Clearing House Interface (CHI) that enables them to connect and transmit data and images in a secure and safe manner to the Clearing House (CH). The paying banks through their CHIs receive the images and data from the Clearing House for payment processing.

The entire essence of CTS technology lies in the use of images of cheques for payment processing.

Note: Public Key Infrastructure (PKI) is a set of policies and procedures to establish a secure information exchange.

 Benefits of CTS to customers of banks:

CTS bring 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
  • no fear of loss of instruments in transit
  • No collection charges for collection of cheque drawn on a bank located within the grid.

Image specifications in CTS in the Indian context:

Imaging of cheques can be based on various technology options. CTS in India use a combination of Gray Scale and Black & White images. There are three images of each cheques that need to be taken - front Gray Scale, front Black & White and back Black & White.

 What does CTS 2010?

CTS 2010 is a cheque truncation system, an image-bound method, for faster clearing of cheques. Truncation means conversion of a physical cheque into electronic form. As per RBI guideline, all banks providing cheque facility to their customers have been advised to issue only 'CTS-2010' standard cheques.

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