Clearing of bank cheques is set to become faster. In its sixth bi-monthly monetary policy statement, the Reserve Bank of India (RBI) on Thursday said it would implement the Cheque Truncation System (CTS) across the country by September 2020.
In CTS, banks use scanned copies of cheques for settlement instead of the physical copy. It makes the cheque clearing process partially electronic. The CTS makes clearing cycle shorter. The verification and reconciliation process is also superior to the physical settlement of cheques.
There have been instances of banks losing cheques in the physical clearing system, which won’t happen now. RBI started implementing the CTS as entirely phasing out the cheque system is not possible despite digital transactions picking up.
According to bankers, the majority of the cheque clearing is already under the CTS.
“A few banks have even stopped taking non-CTS cheques anymore. For all practical purpose, the cheque clearing between scheduled commercial banks now happens within three working days,” said an official of Indian Bank on anonymity as he is not authorised to talk to media.
In the CTS, the image of the cheque is captured at the presenting bank level. It is then transmitted first to the clearing house and then to the drawee branches. Each image carries digital signature from the presenting bank, and there are multiple checks for authenticity of the image captured.
According to the RBI, the cheque truncation speeds up the collection of cheques and therefore enhances customer service, reduces the scope for clearing related frauds, minimises the cost of collection of cheques, reduces reconciliation problems, eliminates logistics problems, and so on.
The system was started in the National Capital Region (NCR) on a pilot basis in 2008, and the central bank kept expanding it to other major cities. In Chennai and Mumbai, it was implemented in September 2011 and April 2013 respectively.
In the older system, cheques that the customer presents are sent to the clearing house, then sorted and the physical copy is sent to the drawee branches. Once this process is complete, banks release credit to the customer.