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)