CTS: Cheque Truncation System in India

RBI in its Statement on Developmental and Regulatory Policies on Thursday (August 8, 2024) announced the implementation of Continuous Clearing of Cheques under the Cheque Truncation System (CTS). The Cheque Truncation System (CTS) currently processes cheques with a clearing cycle of up to two working days. To improve the efficiency of cheque clearing and reduce settlement risk for participants, and enhance customer experience, it is proposed to transition CTS from the current approach of batch processing to a continuous clearing with ‘on-realization-settlement’. Cheques will be scanned, presented, and passed in a few hours and continuously during business hours. The clearing cycle will reduce from the present T+1 days to a few hours. RBI said that the detailed guidelines in this regard shall be issued shortly.

The system of settlement of payment is based on physical cheques by a new procedure called the “ Cheque Truncation System” (CTS). It is an online image-based cheque-clearing system where cheque images and Magnetic Ink Character Recognition (MICR) data are captured at the collecting bank branch and transmitted electronically eliminating the actual cheque movement.CTS is protected by a comprehensive PKI-based security architecture which incorporates basic security and authentication controls such as dual access control, user ID, and passwords with cryptobox and smart card interfaces.

“To leverage the availability of CTS and provide uniform customer experience irrespective of the location of her/his bank branch, it has been decided to extend CTS across all bank branches in the country. To facilitate this, banks shall have to ensure that all their branches participate in image-based CTS under respective grids by September 30, 2021”, RBI said. The Central Bank further said that the banks are free to adopt a model of their choice, like deploying suitable infrastructure in every branch or following a hub & spoke model, etc., and concerned banks shall coordinate with the respective Regional Offices of RBI to operationalize this.

The Cheque Truncation System (CTS) has been in use since 2010. The CTS system is an online Image-based Clearing System (ICS).  In this system of clearing, the collecting bank need not present the physical cheque to the drawee branch. The presenting bank captures the cheque images and Magnetic Ink Character Recognition (MICR) data from end-to-end precise scanners by using the Capture System. Further,   it removes the geographical limitations of the earlier clearing system as the bank branches falling within the grid jurisdiction are treated as local clearing. Thus the outstation cheques within the grid are cleared as local cheques which effectively eliminate outstation cheque collection charges as well as saves time. It has also eased the complexities in inter-bank clearing reconciliation associated with the exchange of physical cheques.

At present 150000 branches including all the erstwhile 1219 non-CTS clearing houses (ECCS centres) which have been migrated to CTS effective September 2020. However, bank branches that are outside any formal clearing arrangement and their customers face hardships due to the longer time is taken and cost involved in the collection of cheques presented by them.

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