LET’S DEFINE CTS
Cheque Truncation System (CTS) is a method of clearing checks electronically rather than physically processing the cheque as it travels to the paying bank branch. The Reserve Bank of India (RBI) has taken this move to expedite cheque clearing. CTS came to action in New Delhi, Chennai, and Mumbai on February 1, 2008, September 24, 2011, and April 27, 2013, respectively. The old MICR-based check processing has been halted across the country following the transfer of the entire cheque volume from the MICR system to the CTS.
HOW DOES CTS WORK?
Cheques are collected from customers and delivered to their corresponding service branch at a predetermined time.
The service branch captures the data (such as MICR code, check number, amount, etc.) and captures pictures of a cheque using their Capture System (which includes a scanner, core banking or CTS application) and fulfills the specifications and standards for data and image. After the required information of the check is safely sent to the Clearing House Interface (CHI), the actual clearing settlement occurs from CHI to CH.
End-to-end Public Key Infrastructure (PKI) has been deployed in CTS to assure data security, safety, and non-repudiation. However, as part of the requirement, the collecting bank (presented bank) delivers the signed and encrypted data and collected pictures to the central processing facility (Clearing House) for transmission to the paying bank (destination or drawee bank).
CHI and Presentation Clearing:
For the purpose of participation, the presenting and drawee banks are given an interface/gateway known as the CHI, which allows them to connect and communicate data and pictures to the Clearing House securely and safely (CH). The Clearing House analyzes the data, calculates the settlement amount and sends the pictures and other data to the drawee banks. This is known as presentation clearing.
The payment process and Completion of the cycle:
The drawee banks receive the pictures and data through their CHIs from the Clearing House for payment processing. The drawee Cheque Truncation System also creates the return file for any unpaid instruments. The return file/data submitted by the drawee banks are processed by the Clearing House in the return clearing session in the same way as presentation clearing, and return data is delivered to the presenting banks for processing. Once the presentation clearing and associated return clearing sessions are properly handled, the clearing cycle is considered complete.
BENEFITS OF CTS
The benefits to the customers of the bank can be summarized as follows:
- The clearing cycle is now shorter.
- Process of verification and reconciliation that is superior
- There are no geographical limitations to jurisdiction.
- Banks and consumers both benefit from operational efficiency.
- Reduced operational risk, as well as the hazards associated with paper clearance
- There are no collection fees for cheques drawn on a bank within the grid.
PRECAUTIONS RELATED TO CTS
Banks and customers should utilize “CTS 2010” cheques, which are more image-friendly and enhanced security measures. Customers can ask/demand that their banks provide them with “CTS 2010” compliant cheque formats. They should select image-friendly coloured inks when writing cheques and prevent revisions or edits. In the case of any changes or corrections, a new cheque leaf should be used because the check will be cleared using an image-based clearing method.
Banks should use caution when affixing stamps to cheque forms so they do not interfere with important information such as the date, payee’s name, amount, and signature. The usage of rubber stamps, for example, should not overpower the clear presentation of these key picture components. All vital characteristics of a cheque must be recorded in an image during the scanning process, and banks and clients must take proper precautions in this respect.
A cheque truncation system encourages the electronic processing of a check using Magnetic Ink Character Reader (MICR) data and a scanned picture. There is no need for a physical check. You can get in-depth information and understanding about CTS in our online banking course. Aspiring Banker’s Postgraduate Certificate in Retail Banking course is all you need to get ready for banking sector.