CTS – Process Flow for PDC’s (Post Dated Cheques)

CTS – Process Flow for PDC’s (Post Dated Cheques)

PDC’s are an integral part of the Indian Banking system. It is observed in spite of ECS (Debit), being popular, the rise of PDC’s is on the increase.

What is a Post Dated Cheque ?

·        A cheque with a future date entered.

·        The cheque cannot be cashed until that date is reached.

What could be the reason for the same?

The following could be some of the answers for the rise of PDC’s.

01)                      To set up a ECS Debit Mandate, the processing time is 7-14 days. This means a loan cannot be disbursed till the ECS Debit Mandate is in place. Usually the borrowers are not inclined to wait 7-14 days, to receive the Loan Proceeds.  Hence, they prefer to issue PDC’s for the Loan Tenure.

02)                     Now-a-days, majority of the Retail Loans (i.e Auto, Personal, Home) are hawked by DSA’s (Direct Sales Agents). And, DSA’s achieve their target only when the Loans are actually disbursed. Hence, they too are comfortable with PDC’s only.

03)                     Speed clearing has picked up at major Metros, at least for Private sector bank Branches. This aids in quick processing of cheques drawn on remote branch locations too.

04)                     And, for Check Bounce cases, the RETURN MEMO is of paramount importance, to pursue for recovery of the Loan dues.

Therefore cheques as a mode of settlement of Loan’s will continue to be the preferred mode of repayment.

Handling of PDC’s under the CTS scenario will : -

/ be simplified

// be accurate

///  lead to reduction of the TAT.

Present Scenario: -

·        Collect the PDC’s of all the Bank Borrower accounts – the pooling location depends on the Individual banks, whether centralized or de-centralized or hub and spoke model etc.

·        Segregate the PDC’s month-wise at the pooling location.

·        Present the PDC’s on the respective dates. The actual work commences in the background, at least 2 weeks prior to the Presentation date.

It is observed that the common date for PDC’s is the 7^th of every month. As a matter of convenience, Banks tend to present the cheques from 7^th to 10^th of the month, in order to avoid clubbing of all bank’s PDC’s on a single date.

Process the Returns, and affect the credits.

Proposed Scenario under CTS:

·        The PDC’s are scanned and converted into CTS ready images.

·        CTS Batches are created according to the Presentation date.

·        Once the CTS batches are created as per the Presentation date, no further processing is required till a couple of days before the actual presentation date.

·        On the presentation date, the CTS Batches are presented as part of the CTS cycle.

·        Process the Returns, and affect the credits.

·        The only hitch will be the removal of the CTS Images in case there is a request for non-presentation of any particular cheque. This also is not a major issue, as in the present scenario too; there are requests for non-presentation of a particular cheque, for a particular PDC cycle.

·        The most significant feature here is the menace of closed accounts. Removing cheques of closed accounts in a physical PDC cycle is tedious and time-consuming. But in case of CTS, a simple action will remove the CTS Images of the closed accounts instantly.

                     Even if the CTS images are not removed from the CTS Cycle, the automated CTS processing system will eliminate them in the first instance itself.

In the above scenario, there will be major benefits in

01)Transportation cost of the PDC’s from one location to another location.

02)                     Storage cost, as all physical PDC’s can be stored at a single pan Indian location, instead of multiple locations.

03)                     Retrieval of a physical PDC will be smoother, as all PDC’s will be at a single location only.

 

ayment and Settlement Systems - Vision 2009-12 Part 2

Payment and Settlement Systems - Vision 2009-12

Annual Policy Statement for the Year 2010-11

Part 2

I wish I had the time, to analyze the Annual Policy Statement for the Year 2010-11 in detail. But time and the vast subject the Statement encompasses does not permit me to do so.

So, I will try to highlights those points, which touch my heart.

In this Blog I will be concentrating on the Payments and Settlements part of the Reserve Bank of India’s Annual Policy Statement for the Year 2010-11

The policy statement relies on the Reserve Bank’s of India’s Payment and Settlement Systems  - Vision 2009-12

Policy Stance

Standardization of Security Features on Cheque Forms

What is there in it?

Cheque Truncation System (CTS)–2010 Standard with benchmark specifications for security features on cheque and field placements on cheque forms have been prescribed.

Why is this required?

Like it or do not like it, Cheques in India still play a dominant role in the funds movement. This phenomenon will last for another half-a-century. Therefore Reserve Bank of India, decided to Standardize the  Security features on cheque forms to aid n          faster processing of the cheques n          minimize fraudulent activities

How it will impact?

n          Please visit my earlier post on the Standardization of security features on cheque forms n          http://prashantnepayments.blogspot.com/search/label/Void%20%20Pantograph n          Increase automated processing thereby reducing the dependency on human. n          Increase automated processing means less turnover time for the ultimate credit to be effected to the customer. n          In the next couple of years, the reach of  CTS will be widened. To me the best benefit of CTS is its ability to transform the Post-Dated Cheques (PDC’s) process. PDC’s can be debit to the customers account i.e Loans or credit to the customer’s account i.e Dividend Payouts, Insurance Policy maturity amounts. The Truncated cheque images for future date can be stored for automatic processing on the due dates.

Payment and Settlement Systems - Vision 2009-12 - Part 1

Payment and Settlement Systems  - Vision 2009-12

Annual Policy Statement for the Year 2010-11

Part 1

	Policy Stance	What is there in it
1	Membership to the Committee on Payment and Settlement Systems	·        India was included as one among 9 other countries for The Committee on Payment and Settlement Systems (CPSS), constituted under the aegis of the Bank for International Settlements (BIS) ·        The Reserve Bank is also represented on three Working Groups of the CPSS
	Why is this required?	How it will impact?
	·        This will aid in developing a robust payments settlement system, which will benefit the economy as well as the common man. ·	·        Please visit my earlier post on the CPSS membership ·        http://prashantnepayments.blogspot.com/search/label/CPSS ·        This will enable our country, to be part of the latest developments in ePayments. ·        At the same time, the experience-sharing with old and new members, will aid the Indian ePayments Players, to avoid the pit-falls, for a smooth ePayments ride.

Quoted from Investopedia

 

Committee On Payment And Settlement Systems - CPSS

What Does Committee On Payment And Settlement Systems - CPSS Mean?
A committee made up of the central banks of G10 countries that monitors developments in payment, settlement and clearing systems in an attempt to contribute to efficient payment and settlement systems, and build strong market infrastructure. The CPSS was created in 1990, and its secretariat is hosted by the Bank for International Settlements.

Investopedia explains Committee On Payment And Settlement Systems - CPSS
The Committee on Payment and Settlement Systems undertakes its work through specific studies by working groups as required, and publishes reports on its findings. The committee also extends its work outside of the G10 countries by creating relationships with the central banks in many emerging market economies.

Unquoted

What is Bilateral Clearing?

What is Bilateral Clearing?

According to Business Dictionary.com, Bilateral Clearing Arrangement is defined as: -

http://www.businessdictionary.com/definition/bilateral-clearing-agreement.html

Government-to-government reciprocal trade agreement up to a specific amount and for a limited period. Value of these trades is expressed usually in a major currency (USdollar, for example) but the exporters in both countries are paid in their local currency. Such agreements are termed disruptive of free trade by World Trade Organization (WTO).

On similar lines, Bilateral Clearing Arrangement’s started to develop, between Individual Banks, which are outside the Normal Clearing Cycle/Process.

This arrangement was developed; to overcome the deficiencies associated with the Normal Clearing Process I our country. However, with the spectacular developments in the Indian Clearing Process, in our country, in the last decade, Reserve Bank of India, decided to re-look at Bilateral Clearing Arrangements.

Reserve Bank of India, after studying the pros and cons of Bilateral Clearing Arrangement’s, has spelt its mind in the Payment Systems in India - Vision 2009-12.

The same is re-produced here

QUOTE

6.6.10 The clearing infrastructure in place at various locations have the advantages of faster clearing cycle, low cost, uniform practices, better dispute resolution and are functioning since long. Bilateral arrangements function outside the clearing infrastructure and do not contribute to the efficiency of the system in all situations.  Therefore, all the Bilateral Clearing arrangements between banks would be reviewed and allowed to continue only where necessary.

UNQUOTE

And, as per Payments and Settlement Act, 2007

Quote

 Bilateral clearing arrangements attract provisions of the Payment and Settlement Systems Act, 2007 (Act) and the regulations framed there under. Section 2 (i) of the Act defines a payment system as a ‘system that enables payment to be effected between a payer and a beneficiary, involving clearing, payment or settlement service or all of them, but does not include a stock exchange’. Section 4 (1) of the Act stipulates that ‘no person other than the Reserve Bank shall commence or operate a payment system except under and in accordance with an authorization issued by the Reserve Bank under provisions of the Act’. Operators of such payment systems are required to seek authorization under the Act, within six months of the commencement of the Act i.e. by February 12, 2009.

UNQUOTE

Reserve Bank of India, as a first step to review the Bilateral clearing arrangements, has issued Notification No RBI/2009-10/180 UBD.CO.BPD. (PCB). Cir. No. 14/12.05.001/2009-10, dt.October 06, 2009, addressed to Chief Executive Officer - All Primary (Urban) Co-operative Banks.

The above Notification can be accessed @

http://www.rbi.org.in/scripts/NotificationUser.aspx?Mode=0&Id=5303.

Though this Notification is addressed to Primary(Urban) Co-operative Banks, I am sure a similar Notification in near future will be addressed to Scheduled Banks.

Reserve Bank of India, desires all Credits/Debits(i.e transactions arising out of normal banking practices)  to Customers Bank Account,  be part and parcel of a Clearing Settlement Process only i.e MICR Clearing/Speed Clearing/RTGS/NEFT/ECS-Cr/ECS-Dr/NECS-Cr/NECS-Dr, as the case might be. No parallel settlement without the specific permission of Reserve Bank of India is allowed.

I feel that this will boost the ePayments in our country, once Normal Banking Transactions outside the Clearing Process are brought inside the Clearing Process.

I repeat, the Posts in this Blog are my personal view only.

RTGS Transactions All India January 2009 to October 2009

RTGS Transactions All India January 2009 to October 2009

Today’s Post is regarding the growth of RTGS Transactions in our Country.

The below Table shows the growth in the last 9 months.

Major Highlights:

01)  There was a fall in the transactions in April 09, as compared to March 09. This is due to the normal business cycle.

02)  The highest % of growth is observed in October 2009.

RTGS Transactions Jan 09 to Oct 09-All India
Month	No of Transactions	Increase over previous month	% Increase over previous month
Jan-09	1436951
Feb-09	1498555	61604	4
Mar-09	1941215	442660	30
Apr-09	1813195	-128020	-7
May-09	1978787	165592	9
Jun-09	2230310	251523	13
Jul-09	2346972	116662	5
Aug-09	2322862	-24110	-1
Sep-09	2433615	110753	5
Oct-09	2925034	491419	20

Payment Systems in India-Vision 2009-12

Payment Systems in India-Vision 2009-12

Part I 

Background:

Reserve Bank of India till date has published two Vision Documents on Payments Systems in India.

The first was published in 2001, and the second one in May 2005.

The Third Draft Vision on Payment Systems in India was released on 12/11/2009, by Reserve Bank of India.

This means a Vision Document every 3 years can be expected.

What is a Vision Document?

The term Vision Document is borrowed from the IT Industry, and now it is a widely used tool across all spectrums of life.

A good Vision Document communicates the fundamental "why and what" for the project and is a gauge against which all future decisions should be validated.

A vision document generally contains:

§                     Introduction

§                     Business Needs/Requirements

§                     Product/Solution Overview

§                     Major Features (Optional)

§                     Scope & Limitations

§                     Other Needs

In this aspect, Reserve Bank of India, not only released the Vision Document but also released the Accomplishments Vs statements document.

The Accomplishments Vs statements Document for Vision 2005-08 of Payments Systems in India, can be accessed @

http://rbi.org.in/scripts/PublicationReportDetails.aspx?UrlPage=&ID=575

Draft on “Payment Systems in India - Vision 2009-12”

Draft on “Payment Systems in India - Vision 2009-12”

  

Reserve Bank of India, has today placed on its website, Draft on “Payment Systems in India - Vision 2009-12”

The Document is slim, just 16 pages, but it power-packed.

This Document lays down Reserve Bank of India’s vision for Payment Systems in India.

In the coming days, will try to post Highlights of the Draft on “Payment Systems in India - Vision 2009-12” 

Draft on “Payment Systems in India - Vision 2009-12”, can be accessed @

http://rbi.org.in/scripts/PublicationReportDetails.aspx?UrlPage=&ID=573

The most exciting aspect of this document is the

INDIA MONEY LINE – 24x7  System for one-to-one funds transfers.