Cheque Truncation System – Infinet Membership

Cheque Truncation System – Infinet Membership.

Why is INFINET membership required for Banks to be part of CTS Grid?

• One of the important security measures in CTS is the Digital Signature of the Presenting Bank.  
• IDRBT is the certifying authority for banks & financial institutions in India, hence the Banks have to be a member of INFINET. 
• The security, integrity, non-repudiation and authenticity of the data and image transmitted from the paying bank to payee bank will be ensured using the Public Key Infrastructure (PKI).
• The CTS is compliant to the requirement of the IT Act, 2000. It has
• been made mandatory for the presenting bank to sign the image & data from the point of  origin itself. The image and data are secured using the PKI through out the entire cycle covering capture system, the presenting bank, the clearing house and the drawee bank.

The PKI standards used are in accordance with the appropriate Indian acts and practices of IDRBT which is the certifying authority for banks & financial institutions in India.

The standards defined for the PKI are as followed:

1. hash algorithm SHA-1
2. padding algorithm pkcs#1
3. asymmetric encryption with 1024 bit key length
4. Triple DES (3DES, TDES) symmetric encryption with 168 bit key length Certificates in x.509v3 format

What are the image specifications in the CTS?

• Imaging of cheques can be based on various technology options. The cheque images
• can be black and white, Grey Scale or coloured. Black and White images do not reveal all the subtle features that are there in the cheques. Coloured Images increase storage and network bandwidth requirements.
• So it was decided that the electronic images of  truncated cheques will be in gray scale technology.
• There will be three images of the cheques i.e. front grey, front black & white and back black & white which will be made available to member banks.
•  
• The image specifications are:

Image Type Minimum DPI Format Compression

Front GrayScale 100 DPI JFIF JPEG

Front Black & White 200 DPI TIFF CCITT G4

Reverse Black & White 200 DPI TIFF CCITT G4

The image quality of the Grey Scale image shall be 8 bits/pixel (256 levels).

What is a gray-scale image?

• Scanners also function like photo-copiers by reflecting the light passed through narrow passage on to the document.
• Tiny sensors measure the reflection from each point along the strip of light. Reflectance measurements of each dot is called pixel.
• Images are classified as black and white, gray-scale or colors based on the pixels are converted into digital values. For getting a gray scale image the pixels are mapped onto a range of gray shades between black and white. The entire image of the original document gets mapped as some shade of gray, lighter or darker, depending on the color of the source.
In the case of black and white images, such mapping is made only to two colours based on the range of values of contrasts. A black and white image is also called a binary image.

How the quality of the images will be ensured?

• As the payments will be made on the basis of the images, it is essential to ensure the quality of the images. For that purpose the solution proposes Image Quality Audit (IQA) at different level.
• RBI specifies the image standards to the member banks.
• The presenting bank is required to perform the quality audit during the capture itself. Further quality audit will be done at the gateway before onward transmission to clearing house.
• Further the drawee bank can ask for the physical instrument if it is not satisfied that the image quality is not good enough for payment processing.

What is is INFINET

The INdian  FInancial NETwork [INFINET] is the communication backbone for the Indian Banking and Financial Sector. All Banks, Public Sector, Private Sector, Cooperative, etc., and the premier Financial Institutions in the country are eligible to become members of the INFINET. 

The INFINET is a Closed User Group [CUG] Network for the exclusive use of member banks and financial institutions.

INFINET is maintained by IDBRT-Institute for Development and Research in Banking Technology.

Cheque Truncation System -- An Introduction

 

Cheque Truncation System -- An Introduction

Like them or Dislike them, Cheques in India, continue to play an important role in the Payment Systems.

Though the retail as well as corporate customers are slowing moving towards electronic payments modes (RTGS/NEFT/ECR/ATM/CARDS), there is still demand for paper Cheques.

Paper Cheques are widely preferred in the following Payment Needs: ---

01) Telephone/Electricity/Water Bills

02) Credit Card Payments.

03)  Local Government Taxes.

04)  Post dated commitments.

Etc

Hence, Reserve Bank of India, Department of Payments and Settlement Systems has launched various initiatives to make cheques: -

01) Safer 02) User-friendly 03) Faster

Toward this end, the Cheque Truncation System  was sought to be intoruced in our country.

What is Cheque Truncation System?

• 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.

Why Cheque Truncation in India?

Cheque Truncation

i.                    speeds up collection of cheques and

ii.                 therefore enhances customer service,

iii.               reduces the scope for clearing related frauds,

iv.                minimizes cost of collection of cheques,

v.                  reduces reconciliation problems,

vi.                Eliminates logistics problems etc.

With the other major product offering in the form of RTGS, the Reserve Bank created the capability to enable inter-bank payments online real time and facilitate corporate customer payments.

The other product, National Electronic Funds Transfer, is an electronic credit transfer system. However, to wish away cheques is simply not possible and that is the reason why the Reserve Bank of India,  decided to focus on improving the efficiency of the Cheque Clearing Cycle. Cheque Truncation is the alternative.

Moreover contrary to perceptions, Cheque Truncation is a more secure system than the current exchange of physical documents in which the cheque moves from one point to another, thus, not only creating delays but inconvenience to the customer in case the instrument is lost in transit or manipulated during the clearing cycle.

How the uniqueness of the cheque would be imparted to the image?

• The images captured at the presenting bank level would be transmitted to the Clearing House and then to the drawee branches with digital signatures of the presenting bank.
• Thus each image would carry the digital signature, apart from the physical endorsement of the presenting bank, in a prescribed manner.
• In order to ensure only images of requisite quality reach the drawee branches, there will be a quality check process at the level of the Capture Systems and the Clearing House Interface. This would ensure only images of requisite quality secured with the digital signatures of the presenting banks reach the drawee branches.

Who can participate in the Cheque truncation system?

• The criteria for banks participating in the Cheque truncation system are:
• Membership of the clearing house in the NCR. ( As CTS is still live only in NCR – New Delhi.
• Membership of the Indian Financial Network (INFINET)

How the non-INFINET member banks can participate in the CTS?

• In respect of banks who are not members of the INFINET, the following alternatives are available.
• They may become the sub-members of the direct members or such banks may use the infrastructure of the other banks having INFINET membership without being the INFINET members themselves and there clearing settlement can be done either directly or through the member through whom they are participating.

Thus the benefits could be summarized as:

a) Faster clearing cycle;

b) Better reconciliation/verification process

c) Better Customer Service Enhanced Customer Window

d) T+0 for Local Clearing and T + 1 for inter-city clearing.

e) Elimination of Float Incentive to shift to Credit Push payments.

f) The jurisdiction of Clearing House can be extended to the entire country. No Geographical Dependence

g) Operational Efficiency will benefit the bottom lines of banks Local  Clearing activity is a high cost no revenue activity.

h) Minimises Transaction Costs.

i) Reduces operational risk by securing the transmission route.

Cheque Truncation System(CTS) in India, was launched as a Pilot in NCR-New Delhi, in February 2008.

After the initial hiccups associated with CTS were staiblised, MICR clearing was abolished in NCR-New Delhi w.e.f 01/07/2009, and at present only CTS is functioning in NCR-New Delhi.

The next step for Cheque Truncation System (CTS) is Chennai.

However, before CTS is introduced in Chennai, Reserve Bank of India, DPSS has laid down the Road Map for CTS – 2010 i.e Standardization (Consistency, Equality) and Enhancement (Enrichment) of Security Features in Cheque Forms.

My Blog Post on the same can be accessed @ http://prashantnepayments.blogspot.com/2010/02/standardisation-consistency-equality.html

Review of bilateral(Mutual, Joint) clearing(payment) arrangements between banks – Regional Rural Banks

Review of bilateral(Mutual, Joint)  clearing(payment) arrangements between banks – Regional Rural Banks

Reserve Bank of India, vide RBI/2009-10/332 RPCD.CO RRB.BC.No.58/03.05.33/2009-10,

Dt. March 2, 2010, addressed to The Chairman/All Regional Rural Banks (RRBs), advised Regional Rural Banks, to discontinue the practice of Bilateral Clearing Arrangements.

The above Notification can be accessed @

http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=5518&Mode=0

Similar Notification was issued to Primary(Urban) Co-operative Banks, and  State and Central Co-operative Banks

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, 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.

NEFT New Features from 01/March/2010 - Part 3d

From today, the new features in NEFT have gone live.

NEFT users would benefit from the extended NEFT timings of 9.00am to 7.00pm.

Individual Banks cut-off would be 9.00am to 6.30pm. Still, a two hour increase over the earlier timings.

Of course in the initial stages, the volumes would be low. But, I am sure the volumes will increase over the next couple of months. 

The majority of such transactions will originate from Non-Branch Channels, i.e Internet, Mobile, ATM's.

I am still not sure whether any Bank has already implemented the SMS/Email confirmation part.

However, all Banks will implement the  SMS/Email confirmation part, once the customers complaint start rolling in.

RFP-Application Form/Security amount to be routed through NEFT/RTGS

RFP-Application Form/Security amount to be routed through NEFT/RTGS

I believe that for any project/idea to succeed, the change should start from within (Organization or Individual).

Implementing a new idea by the Organization itself, and than marketing it to outsider’s aids in fine tuning the marketing strategies at the same time, it is easier for front-line employees to convince the customers about the benefits f the new idea.

Towards this end, I have been advocating the usage of NEFT channel for Bank related transactions for Payments by them as well as receipts to them by the Banks.

This will spread the concept of NEFT amongst the Bank Staff as well as the customers both existing and potential.

Today I Keyed in the work RFP+Banks in Google

http://www.google.co.in/search?hl=en&source=hp&q=rfp%2Bbanks&btnG=Google+Search&meta=cr%3DcountryIN&aq=f&oq=

RFP means Request for Proposal. Banks float RFP for various purposes.

Apart from the technical information in the RFP, there are two important components

01)                      The cost of the RFP Application.

02)                     Bid Security

I have noticed that all the Banks without exception, require the above payments in Demand Draft/Pay Order form only.

Bank Guarantees are accepted as Bid Security.

Wouldn’t it be nice if Banks instead of requesting for Demand Draft/Pay Order, state that the requisite amounts be routed through RTGS/NEFT.

This will boost the knowledge amongst the Bank staff as well as show to the RFP Bidders that Banks trust their own products.

This will have a multiplier effect.

Just waiting which Bank will be first one in this arena