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

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. 

Cheque Truncation System – 2010 – (CTS 2010) Guidance Note by National Payments Corporation of India (NPCI)

Cheque Truncation System – 2010 – (CTS 2010) Guidance Note by National Payments Corporation of India (NPCI)

As the deadline for CTS-2010, is coming closer, the various stake-holders are getting their act together

As per RBI Notification No RBI/2009-10/323/DPSS.CO.CHD.No.1832/04.07.05/2009-10  dt.February 22, 2010, IBA(Indian Banks Association) and NPCI, are the coordinating agencies, for CTS - 2010.

Towards this end, NPCI has on 21^st September, 2010 issued a Guidance Note for the roll-out.

The complete Guidance Note can be accessed at

http://www.npci.org.in/CTCircular.aspx

The highlights of the Guidance Note are :

Orders placed by Banks for Cheque Forms, on or after 01/10/2010, must  comply with CTS – 2010 Security features

The Security features contain Mandatory features as well as Optional features

The Mandatory Security features are : -

A) Water Mark (to be incorporated at the paper manufacturing stage)

B) Void Pantograph ( at printing stage)

C)Ultra-violet logo of Bank(at printing stage)

D) Standardized field placements of a cheque

E) Cheque printing colours and background.

F) Microlettering.

G) New Rupee Symbol at CAR (Courtesy Amount Recognition) amount in figure field.

H) Printer Name along with CTS – 2010

Optional Features:-  These are optional features based on the Banks risk perception.

(i) Supplementary watermark containing their own logo  - - - A watermark is a recognizable image or pattern in paper that appears as various shades of lightness/darkness when viewed by transmitted light (or when viewed by reflected light, atop a dark background), caused by thickness or density variations in the paper

(ii) Embedded fluorescent fibres, - - - Invisible colored fluorescent fibres are embedded into the paper during the manufacturing process. The fibres are invisible to the naked eye, but become visible when viewed under an ultra violet lamp. This can be placed at random locations or at pre-determined locations on the Cheque forms.

(iii) fugitive ink, - - - Water fugitive ink is sensitive with most liquid solutions and will smear and stain the document.  Most official stamps uses water fugitive inks (McGraw-Hill, 2007).  This security feature makes it apparent if a document has been altered.

(iv) secondary fluorescent ink, - - - Fluorescent inks are naturally bright inks that reflect and emit light making use of UV light waves, which other inks cannot take advantage of.

(v) Toner fusing - - - Toner Fuse Technology causes Laser Toner to bond permanently to the paper surface. This covert security feature makes it impossible to "lift" words and numbers off the surface of the paper using adhesive tape, without destroying the paper surface.

(vi) check- sum.

(vii) Patterns

(vii) Floral designs

(ix) bleeding ink, - - - An option of bleeding ink could be implemented on a cheque which makes fraud impossible using any water based chemicals, if applied to the cheque a colored solvent reacts and spoils the cheque.  

(x) Structural magnetic security thread

(xii) Hot stamped holograms on multi-city cheques and demand drafts

(xiii) auto-detection tools

(xiv) Use of UV band on sensitive and  key areas of interest on a cheque such as Legal Amount Recognition (Amount in Words), Courtesy Amount Recognition (Amount in Figures), Signature, Beneficiary Name

(xv) pre-encoding of amount field on the MICR band for demand drafts / pay orders (above a self-decided cut-off) before issue to customers

(xvi) Use of check-sum on the face of demand drafts / pay orders (other than the MICR band), etc.

NPCI has advised banks that the additional security features adhere to CTS – 2010 specifications and also not Image heavy.

The deadline for implementation of the CTS 2010 standards is 31/12/2010.

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          One of the interesting aspect of this Guidance Note is that the CTS 2010 Specifications are applicable to all Cheque forms, and not only for Cheques forms for branches under the CTS (Cheque Truncation System) locations.

This might be to ensure that the Speed Clearing process does not get de-railed and also to ensure uniformity amongst the Cheque forms, in our country.

As the INR symbol has been adopted, this also is finding place on the new Cheque Forms.

I guess the next Guidance note will be on the transition period for existing Cheque Forms, already in the financial system. As it is, still Non-MICR cheques are being issued by few Government Departments.

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Another fascinating facet of this Guidance Note, is that the testing fee of Rs1000/- per Cheque Form Batch is to be remitted by Payorder/Demand Draft, and through NEFT.

Yes, I would have preferred the testing fees through NEFT rather than Pay Order/Demand Draft.

Frequently Asked Questions(FAQ's) on Speed Clearing.

Frequently Asked Questions(FAQ's) on Speed Clearing.

Reserve Bank of India, has recently released the latest Frequently Asked Questions(FAQ's) on Speed Clearing.

The  Frequently Asked Questions(FAQ's), are comprehensive and simple to understand.

Hence, I will not attempt to re-invent the Wheel.

The Frequently Asked Questions(FAQ's) on Speed Clearing, can be accessed @
http://rbi.org.in/scripts/FAQView.aspx?Id=72

However, I wish to mention a few points, for faster realization of  your Cheques.

01) Ensure that the cheques issued in your favor are in the same style as the title of your bank account.
For eg: My name in my Bank Account is Nayakanti Prashant, hence, in all the cheques I take, I ensure that the Payee Name is written as  ''Nayakanti Prashant''.

02) Ensure that your bank account number is mentioned next to your name on the cheque.

This minimizes the chances of fraudulent alteration of the Payees name on the cheque, in case it is misplaced/lost

Eg: Pay  Nayakanti Prashant a/c 556010008350

Of course, the best way to receive funds in lieu of cheques are RTGS/NEFT. However, this might not be possible, when a Post-dated cheque is part of the transaction.