Friday, May 31, 2013

Is your cheque CTS compliant?

This article was originally published in Postnoon on May 30, 2013; Co-Author: Anuj Hetamsaria


Mr. Mukherjee was holding a sheet of paper and walking towards me at the Park. He looked agitated as he always is whenever faced with financial decision making or difficulty in understanding something. He held out the paper even before he greeted me.
Prof. Nicky: What is this Mr. Mukherjee?

Mukherjee: Read it. I got it from my bank as an email today. What does this mean? What am I supposed to do?
Nicky: Okay, let me see.

The email read, "The RBI has introduced a new Cheque Truncation System (CTS). All cheques issued from 1st August, 2013 needs to be CTS 2010 compliant. Any old cheques or non CTS cheques will not be accepted after 31st July 2013".
You don't need to worry Mr. Mukherjee. RBI is implementing a new cheque clearning system called cheque truncated system which is meant for faster clearance of cheques.

Mukherjee: What is this CTS?
Nicky: CTS was introduced and implemented in the National Capital Region (NCR) in February 2008 on a pilot basis. The number 2010 in 'CTS-2010' is because the guidelines for CTS came up in the year 2010.

As per wikipedia, CTS is basically 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.

Mukherjee: But why should I worry about it? Since you taught me to use internet banking, I hardly ever use the cheque. I transfer money using RTGS and NEFT. Pay bills through internet banking.

Nicky: But didn't you give post dated cheques when you took a home loan? Also, you may need to pay for your daughter's education through cheque, many a times payments to government agencies need to be made by cheques, you may receive cheque from someone. If not immediately, you will definitely get affected by it in the future. So it would be best to be prepared rather than sorry. This system is anyways for your safety and benefit.

Mukherjee: How so?
Nicky: Its easier for banks to implement and is less costly than physical movement of cheques. It will result in shorter clearing cycle, superior verification and reconciliation process. It will be faster as the physical movement of cheques will stop and an electronic image of the cheque will be transmitted with key important data. As the system matures, it is proposed to integrate multiple locations and reduce geographical restrictions in cheque clearing. Hence, there are chances of multi-city cheques getting cleared on the same day, going forward.

It's not only beneficial from users perspective, it's good from regulators and banks' angle too. It reduces operational risk in banking. Scope for frauds are minimised under the CTS regime, which is good for banks.

Mukherjee: What kind of information will be transmitted electronically to the other bank?
Nicky: Information like date of presentation, presenting bank details, data on the MICR band.

Mukherjee: And what about the changes to the cheque leaf itself?
Nicky: A CTS compliant cheque leaf is different from a normal cheque leaf you currently use, and has certain distinct features. Certain benchmarks have been prescribed like quality of paper, watermark, bank’s logo in invisible ink, void pantograph, etc, and standardization of field placements on cheques. This will achieve standardization of cheques issued by banks. The printer details along with the words ‘CTS-2010’ is mentioned along the area where you tear off the leaf from the cheque book. The new symbol of the Indian rupee is printed beside the area where the amount in figures needs to be written. The words ‘please sign above’ are mentioned indicating the space where you will need to sign the cheque.
Mukherjee: It's good to know that the regulators are taking steps to introduce safer processes for us!
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