Cheque Truncation System in India - slowly spreading its wings

The benefits of CTS are not yet visible to the general public. Once the Southern Grid is fully operationalized, the change will be clearly noticeable.

As per RBI FAQ’s on CTS, the new approach is the Grid Based approach, wherein the whole country will be divided into Grids.

As a beginning, Chennai Grid has been operationalized in March 12, with few banks of Bangalore and Coimbatore joining it. Like all good things in life, it will be a while, before all Bangalore/Coimbatore Bank branches are on the CTS Grid.

Eventually, the Chennai Grid will cover Bank Branches in Tamil Nadu, Kerala, Karnataka, Andhra Pradesh and the Union Territory of Puducherry.

In my view, the major benefit of CTS will be enhancement of the coverage of the Speed Clearing.

Let me explain in detail.

The below table contains list of few Co-operative with exclusive presence in Tamil Nadu or in Coimbatore/Chennai cities.

Sample List of Co-operative Banks
COIMBATORE CITY COOP.BANK LTD	Coimbatore
COIMBATORE DIST.CENTRAL COOP.BANK LTD	Coimbatore
COIMBATORE DIST.CENTRAL COOP.BANK LTD METTUPALAYAM	Coimbatore
METTUPALAYAM COOP.URBAN BANK LTD	Coimbatore
PALLAVAN GRAMA BANK LTD	Coimbatore
POLLACHI COOP.URBAN BANK LTD	Coimbatore
TAMILNADU INDUSTRIAL COOPERATIVE BANK LTD.	Coimbatore
CHENNAI CENTRAL CO-OP. BANK LTD.	Chennai
GEORGE TOWN CO-OPERATIVE BANK LTD.(GTC)	Chennai
TAMILNADU INDUSTRIAL COOPERATIVE BANK LTD.	Chennai
TAMILNADU MERCANTILE BANK LTD.	Chennai
TAMILNADU STATE APEX CO-OP. BK. LTD.	Chennai

Suppose a Bangalore based customer-(holding account with ABC Bank) receives a cheque drawn on COIMBATORE CITY COOP.BANK LTD

Sr.No	The Present	The Future
01)	Customer deposits it in ABC Bank Branch	No Change
02)	ABC Bank branch forwards it to their Bangalore Service Branch	No Change
03)	ABC Bangalore service branch, forwards cheque to their Coimbatore service branch	Change	Cheque is lodged under CTS Grid Clearing. The image is transmitted to COIMBATORE CITY COOP.BANK LTD branch
04)	ABC Coimbatore service branch presents in local clearing	Change	This step is eliminated
05)	Status - If ‘return’, the physical cheque is sent back to ABC Bangalore service branch.	Change	This step is eliminated
06)	Status - If ‘no return’, amount is credited to the customers account.	No Change

The Benefits:

1. Reduction in TAT for credit to the customer.
2. Enhancement of Scope of Speed Clearing i.e., Co-operative Banks/RRB’s/LAB’s/ Other Banks still not part of Speed Clearing
3. Increase of volumes processed under CTS.
4. Boost for financial inclusion, as citizens residing in remote/small places with access only to Co-op Banks/RRB’s can also get the benefits of faster realization of cheques.

Streamlining of few areas:

Paper to Follow – The less the ‘paper to follow’, requests, the more will the efficiency of the CTS will increase.

1. One recent Finance Ministry Notification should reduce the ‘paper to follow’, instruments to Government Departments i.e Controller General of Accounts (CGA) directed all payments above Rs 25,000 to suppliers, contractors, grantee and loan institutions to be directly credited to their bank accounts. This is with effect from 01/04/2012.
2. As the participants gain experience of the CTS environment IQA Failure cases would go down.

Bank Holidays under NI Act:

Regional Holiday and Blockage

The Grid Jurisdiction will fall under different states, and the states have different holidays calendars.

The CTS Application has a “Blockage” function in the system to handle different state holidays, for a ‘value date’. The blockage prevents other banks to present any cheques on the branch / bank put under blockage.

In addition, it gives extension to all unexpired items drawn on such branches and banks for the blockage period.

The branches / banks under blockage can not lodge any fresh presentation during the blockage period.

New Returns Reasons under Cheque Truncation System (CTS)

Reason No                  Reason Description

82                               Bank/ Branch blocked

83                               Digital Certificate Validation failure

92                               Bank Excluded