ECCS - Live in 99% Indian Clearing Houses

The total number of Non-MICR Clearing Houses in India is 1131. Out of 1131 Clearing Houses, ECCS is live in 1123 Clearing Houses. 

This is a staggering 99% of the Clearing Houses.

ECCS
Live in	Nos
Apr2009	1
Jun2009	1
Jun2010	1
Jul2010	1
Aug2010	1
Sep2010	1
May2011	1
Jun2011	2
Jul2011	26
Aug2011	118
Sep2011	290
Oct2011	260
Nov2011	239
Dec2011	122
Jan2012	47
Feb2012	9
Mar2012	3
Total	1123
CLG Hsg	1131
	99.00%

The above numbers show the month wise migration of Clearing Houses.

Testing commenced in April 2009 and went up to June 2011.

By 2011, the teething problems were overcome, and the migration sped up.

80% of the installations were done in a five  month period i.e August 2011 to December 2011.

The success was due to the co-ordination between NPCI, Local Clearing House and Image Infosystems Pvt Ltd officials.

The knowledge gained at previous installation  centres was shared at the new installation centres. This knowledge sharing ensured smooth adaption with minimal glitches. 

Automated Clearing House (ACH) in India. Kick-off in India.

Automated Clearing House (ACH) in India. Kick-off in India.

The kick-off for another NPCI Mandate i.e launch of ACH has begun.

NPCI has launched a Request for Proposal (RFP) for “Supply, Implementation and Maintenance of Automated Clearing House Solution (ACH) for National Payment Corporation of India”

The scope of ACH is 82,000+ Bank Branches spread all over India.

ACH is primarily designed to handle low value high volume transactions based on electronic files.

The whole RFP process i.e Issuance of Bidding Document to Opening of Technical Bid is expected to be over by 28/09/2011.

AS we are starting from scratch, ideally the transactions should be in real-time mode rather than batch mode.

Real-time mode will be the rule changer  for Payments in our country.

Look forward to more Posts on ACH in this Blog.

ACH’s originated in USA, in the early 1970’s and spread across USA very rapidly.  

01/07/2010 - RTGS/NEFT is closed Payments Holiday

01/07/2010 -  is a ePayments Holdiay
RTGS/NEFT is closed due to the Half-Year Closing of Books of Reserve Bank of India.

As this is the middle of the week, and this being a scheduled holiday, all ePayments Users must have planned their activities well in advance.  
The spill-over effect will be seen on Friday and Saturday.

However, as the NEFT Settlement Hours have been increased, there should be a smooth flow of transactions, without any bottle-necks anywhere.

The RTGS Customer timings on 30th June i.e tomorrow might be extended till 7.00pm, to enable customers to do a last minute juggling of funds, if required.

The real challenge would be to manage Clearing Adverse Situations on 1st July 2010, at locations  where Clearing will be held as usual on 01/07/2010.

Handling of Cheque Returns under Cheque Truncation Process - CTS

Handling of Cheque Returns under Cheque Truncation Process - CTS

In simple terms, Cheque Truncation System, is ”Once deposited, the cheque is scanned and its electronic image transmitted through the entire clearing cycle, instead of the physical cheque itself.

The physical cheques are retained with the collecting bank, instead of the paying bank.

The basic doubt that arises amongst the common man, is what happens when a Cheque is dishonored under CTS?

Hence in ideal conditions, once the Cheque is dishonored under CTS, an Image Return Document (IRD) is generated and sent to the payee.

In many countries, where the CTS has been fully implemented, this IRD is a legal substitute for the dishonored cheque.

However, in our country CTS is still only functional in Delhi (NCR). Hence, an IRD will not solve the purpose. Further, if IRD are issued in the present scenario, there will be chaos at the Banks customer’s centers and branches

To overcome this issue, a-via medium was found out, which was implemented in our country.

In Delhi (NCR), once the cheque is dishonored, under CTS, the collection bank, removes the physical cheque from its possession and hands over to the customer along with the cheque return memo.

As it is, now also the Returned/dishonored cheques are returned to the collection banker by the paying banker, for onward transmission to the customer.

Hence, the end process to the customer remains the same, irrespective of whether the cheque is transmitted physically or through CTS.

For the IRD to be acceptable in our country, it will take a very long time, may be two decades or so.

Standardisation ( Consistency, Equality) and Enhancement (Enrichment) of Security Features in Cheque Forms

Standardisation ( Consistency, Equality) and Enhancement (Enrichment) of Security Features in Cheque Forms

CTS-2010 Standard

Reserve Bank of India, Department of Payments and Settlement Systems has today released a Notification regarding the minimum specifications for Cheques for CTS(Cheque Truncation System) to be a success. This new standards will not only make Cheque handling safe in CTS environment, but also safe in non-CTS environment.

The Circular No is RBI/2009-10/323 DPSS.CO.CHD.No. 1832/ 04.07.05 /2009-10, dt February 22, 2010 addressed to The Chairman and Managing Director / Chief Executive Officer
All Scheduled Commercial Banks including RRBs / Urban Co-operative Banks / State Co-operative Banks / District Central Co-operative Banks

The link is

http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=5509&Mode=0

Please note that this circular is address to Scheduled Banks including RRB’s/UCB’s/SCB’s and DCCB’s.

In a single circular the whole spectrum of banking industry has been addressed.

As Post Office Banking does not fall under the purview of Reserve Bank of India, the Department of Posts will have to initiate steps to meet the new standards.

When will this new guidelines be effective from?

        A specific deadline has not been announced, but these guidelines will be effective before CTS is live in Chennai.

The nitty-gritty will be finalized by Reserve Bank of India, in consultation with Indian Banks Association and National Payments Corporation of India.

My guess is that as the project is named as CTS 2010 – Standard, the guidelines will go live this year only.

Benefits to customers:-

01)                      Date Boxes are introduced i.e Date DDMMYYYY, instead of the present blank line.

This ensures that the complete date will be filled up, and there will be minimal chances of a wrong date being filled in.

02)                     The Bank’s Name and Bank’s Branch Details are shifted from the present left hand bottom to the left hand top.

03)                     Reserve Bank of India, has advised that as far as possible, the Account numbers should be pre-printed. Pre-printed Account numbers are a must for current account holders and Corporate Customers.

I interpret corporate customers as Salary Accounts too, even if they are under the ambit of Saving Accounts. This is to curtail the frauds.

Once the account numbers are pre-printed it becomes easy for the account-holders names also to be printed on the Cheque books. At the most the first Cheque-book issued in the account might only have the pre-printed account number.

The benefits are more       to the Branch Officials than the customers.

Benefits to Bank Officials:-

·        As this Cheque standards will also be adopted for Non-CTS locations, immense benefits will accrue to Cheque handling officials.

·        The data boxes will minimize date errors.

·        The standardization of the fields will aid in swift processing of a large number of cheques.

To me the most important benefit is the Prohibiting alterations/corrections on the cheques. In rare cases, only date field can be altered/corrected.

In case of alterations/corrections in payee’s name, amount in words, amount in figures, the customers are advised to issue new cheques.

The key to success of the above point depends on customer education. Customers have to be properly educated about the dangers of alterations/corrections in payee’s name, amount in words, and amount in figures

Proper education will reduce the customer dis-satisfaction and increase the customer’s faith in the new standards.

Through the standardization, the processing of cheques can be automated to a great extent, reducing human errors and minimizing frauds.

The proposed standards not only aid in quick processing of large number of cheques, but also increase the comfort level of human resources at all levels of Cheque handling.

This in turn will lead to enhanced customer satisfaction.

Though the proposed standards have been framed for CTS processing, all the Bank cheques by default will have to adhere to this new Standards. Having two sets of standards for CTS cheques and non-CTS cheques will be cumbersome for the banks as well as CTS processing centers.

Payable at Par cheques have become quite common, and Speed Clearing is also picking up. This means literally a Cheque can be paid across any Clearing Location in India, as long as the respective Bank Branch is located in the catchment area of the local Clearing House.

Hence, Banks by default will gradually switch over to the new standards.

Challenges:

Dealing with the existing stock of cheque books:-

Once the deadline is decided, banks will automatically place order for the new Cheque Books. The existing un-issued Cheque books, will have to destroyed.

What about the Cheque leaves already issued to the customers? The customers might be requested to destroy unused cheque leaves held by them. The major challenge will be the handling of cheques leaves already written/signed by customers and handed over to the payee’s i.e Post-dated cheques for Loan repayments. Well, such cheques might be in the System for 3-4years, and which have to be handled as exception cases.

Banks have to switch over from decentralized issuance of cheques books to centralized issuance of cheques books

This will be a major challenge for Public Sector Banks, as they will have to draw up plans to dismantle the existing procedure and switch over to the centralized issuance of Cheque books.

 Customer Education:

Customer education is vital for smooth switch over to the new standards.

Customer’s education has to focus on the following points:

01) The dangers of alterations/corrections in payee’s name, amount in words, and amount in figures.

02)                     The need to order fresh cheques in advance, as otherwise issuance of Cheque books with pre-printed account numbers will be difficult.

03)                     The need to withdraw unused cheques with old standards held by them.

One ground-breaking feature of this Notification is the introduction of the Void Pantograph Security feature.

Void  Pantograph 

A pantograph screen that has the word "VOID" hidden in it, created by using special screens and background designs. When photocopied by a color copier, the word "VOID" appears on the copied document. A document with a void pantograph is more difficult to duplicate than one with a standard pantograph. 

Types of Physical Cheque Clearing

 

What are the Types of Physical Cheque Clearing.

Ans: In India, Physical Cheque Clearing can be divided into 4 types.

01)                      Manual—yes, Manual, in few locations in North East.

02)                     MMBCS

03)                     MICR

04)                     CTS.

As on 30^th September, 2009, there are 1137 Clearing Houses in India.

Reserve Bank of India, conducts the Clearing Operations in the 4 Metros i.e Delhi, Calcutta, Chennai and Mumbai.

In all other locations, a Public Sector Bank(PSB), conducts the same. Private Sector Banks have not entered this arena. Though in few Centrtes, Private Sector Banks, have been trained as a Stand-by. This occasion might arise, when the Local PSB staff conducting the Clearing House, are on strike.

Total Number of Clearing Houses as on 30th September, 2009	1137
Manual	8
MICR	66
MMBCS	1063
CTS          .	Only Delhi at present, MICR also functions here

Very briefly, I will now give an overview of the above. However, MICR, CTS have to be dealt in depth, and hence will cover them in separate Posts.

Manual Clearing: Physical Exchange of instruments across the counter, with manual tallying.

MICR: Magnetic Ink Character Recognition

Magnetic Ink Character Recognition, or MICR, is a character recognition technology used primarily by the banking industry to facilitate the processing of cheques. The technology allows computers to read information (such as account numbers) off of printed documents. Unlike barcodes or similar technologies, however, MICR codes can be easily read by humans.

MICR was introduced to the world in USA in the late 50’s and Reserve Bank of India, introduced it India, in the late 80’s in the 4 Metros. In, the last couple of decades, the MCR Technology has spread to 66 Clearing Houses.

During the Y2K, roll-over, all the Reserve Bank of India top officials/Finance Minstry’s top honchos were praying to GOD, that the MICR Processing at the National Clearing Cell, Mumbai, should not collapse. When it performed perfectly, there was relief all round!!

I had the privilege of being witness to the event.

MMBCS: - Magnetic Media Based Clearing Systems.

This is ideal for low volumes.

Banks provide presentation as well as Returns Data in the MMBCS format, and the Settlement is arrived by the MMBCS Package.

Advantages: - 01) Helps the time required for arriving at Settlement.

02) Eliminates tedious manual calculations.

03) The MMBCS Package is standardized all over India, hence, Banks Automation Packages, can easily be configured to deliver MMBCS compatible Data.

04) MMBCS is a DOS based program, and runs on a 486 PC too!!

Disadvantages: 01) Is not feasible, when the volumes in a particular Clearing House are large

02) As the individual cheques have to be dropped in the respective Banks Receptacle, there are chances of wrong-dropping, i.e Andhra Bank cheque being dropped in Corporation Bank  Receptacle.

CTS: Cheque Truncation System.

At present, CTS has been introduced only in New Delhi, and Chennai too might join the list shortly. Personally, I am not a votary of CTS.

Truncation is the process of stopping the flow of the physical cheque issued by a drawer to the drawee branch. The physical instrument will be truncated at some point en-route to the drawee branch and an electronic image of the cheque would be sent to the drawee branch along with the relevant information like the MICR fields, date of presentation, presenting banks etc.

Thus with the implementation of cheque truncation,

the need to move the physical instruments across branches would not be required, except in exceptional circumstances. This would effectively reduce the time required for payment of cheques, the associated cost of transit and delay in processing, etc., thus

speeding up the process of collection or realization of the cheques.

(Source : RBI)

Physical Clearing Process Cycle

What is Clearing Process:-

 Todays Post deals with the Physical Clearing of Cheques.

All payment instructions made through the medium of cheques are debit transactions. A debit transaction occurs when the intended recipient initiates the payment transaction by depositing the instrument in his bank. During the course of a business day a number of instruments are deposited with a bank for collection by its customers. These instruments may be drawn on different branches of various banks and a collecting bank has to physically present the instruments for collection to each drawee bank/branch. The clearing system provides a convenient and well established institutional mechanism to take care of the problem of physical delivery of instruments as well as funds transfer between different banks.

The use of Physical Instruments for funds movement in the country is coming down, but still the number is significant for us to focus in it.

ePayments was born out of Physical Cheques only!!

If the Clearing House is not present, the whole Banking System would collapse!!

Basically there are two types of Clearing

01) Local Clearing

02)                       Out-Station Clearing

A new clearing has been introduced by Reserve Bank of India, in June 2008 i.e Speed Clearing.

01) Local Clearing: Clearing of cheques situated in the jurisdiction of the respective Clearing House.

02)                       Out-Station Clearing: Clearing of Cheques not situated in the jurisdiction of the respective Clearing House.

At present,  outstation cheques are paid through two channels viz. on Collection basis or through National Clearing (Inter-city Clearing). This requires movement of cheques from the Presentation centre (city where the cheque is presented) to Drawee centre (city where the cheque is payable) which increases  the realization time for cheques.

      In India, the clearing system is local and confined to a defined Jurisdiction covering all the banks and branches situated in the area under a particular zone. The clearing house is a voluntary association of banks under the management of a bank where the settlement accounts are maintained. Wherever Reserve Bank of India has its office (and a banking department), the clearing house is managed by it. In the absence of an office of the Reserve Bank, the clearing house is managed by the State Bank of India, its associate banks and in a few cases by public sector banks.

The complete list of Clearing Houses in India, can be accessed @

http://www.rbi.org.in/Scripts/bs_viewcontent.aspx?Id=1056

As on 30/09/2009, 30^th September, 2009, 1139 Clearing Houses were functioning in India.

Time Frame for Collection of Cheques as laid down by Reserve Bank of India. Overall, each Bank is free to form its own Cheque Collection Policy. However, it should be in tune with the following Reserve Bank of India, guidelines.

QUOTE

For local cheques credit and debit shall be given on the same day or at the most the next day of their presentation in clearing. Ideally, in respect of local clearing, banks shall permit usage of the shadow credit afforded to the customer accounts immediately after closure of relative return clearing and in any case withdrawal shall be allowed on the same day or maximum within an hour of commencement of business on the next working day, subject to usual safeguards.

(iii) Timeframe for collection of cheques drawn on state capitals / major cities / other locations to be 7/10/14 days respectively

UNQUOTE

This is an extract from Lr.No.DPSS.CO. (CHD) No. 873 / 03.09.01/ 2008-09, dt.November 24, 2008, to The Chairman & Managing Director / Chief Executive Officer
All Scheduled Commercial Banks.
The complete letter can be accessed @
http://www.rbi.org.in/scripts/NotificationUser.aspx?Mode=0&Id=5008