Frequently Asked Questions on Cheque Truncation System (CTS 2010)
1. What is Cheque Truncation ?
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.
2. Why Cheque Truncation in India?
Cheque Truncation speeds up collection of cheques and therefore enhances customer service, reduces the scope for clearing related frauds, minimizes cost of collection of cheques, reduces reconciliation problems, 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 Bank 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.
In addition to operational efficiency, Cheque Truncation has several benefits to the banks and customers which includes introduction of new products, re-engineering the total receipts and payments mechanism of the customers, human resource rationalization, cost effectiveness etc.,
Cheque Truncation thus is an important efficiency enhancement initiative in the Payments Systems area, undertaken by RBI.
3. 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. In addition, drawers could consider using holograms, barcoding or such other features, which would add to the uniqueness of the images.
4. Brief explanation of the entire process flow envisaged in the CTS?
The CTS project envisages a safe, secured, faster and effective system for clearing of the cheques. In the CTS the presenting bank will capture the data & images of the cheques using their Capture System which is internal to them. They have to meet the specifications and standards prescribed for data and images. To ensure security, safety and non-repudiation the PKI (Public Key Infrastructure) is being implemented across the system. The banks will send the captured images and data to the central clearing house for onward transmission to the payee/drawee banks. For that purpose RBI will be providing the banks software called the Clearing House Interface (CHI) that will enable them to connect and transmit data in a secure way and with non-repudiation to the Clearing House (CH). The Clearing House will process the data and arrive at the settlement figure for the banks and send the required data to payee/drawee banks for processing at their end. The drawee/payee banks will use the same CHI mentioned earlier for receiving the data and images from the Clearing House. It will be the responsibility of the drawee bank Capture System to process the inward data and images and generate the return file for unpaid instruments.
5. 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 Gray Scale 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).
6. 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 colour based on hoe 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 colour 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.
7. 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 will be specifying 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.
8. What type of cheques can be presented in the CTS?
All the local cheques can be presented in the CTS. Banks may also present cheques on banks situated outside the NCR, but such banks have branches in the NCR region. The CTS also supports the intercity clearing and specialized clearing like high value clearing etc. The on-us instruments where both presenting and drawee banks are same are not allowed in the CTS. Images of such instruments would be stopped at the Clearing House Interface itself.
9. Will there be any change in the process for the customers?
There will be no change in the clearing process. Customers would continue to use cheques as at present, except in the use of image friendly coloured ink for making the instruments. Of course, such of those customers, who used to receive the paid instruments, like Government Departments, would only receive cheque images instead of the physical instruments. This will also facilitate in better processing at their end, as they will be able to access online images in addition to the data. As the images are going to be moved across, the time taken for the receipt of paid instruments at their end could be reduced so that better and timely control could be exercised over payments. This will also give an early opportunity to the drawers or issuers of cheques to detect frauds or alterations in their cheques.
It is also possible for cheque issuers to consider newer techniques such as embedded verifiable features such as bar-codes or logos or watermarks, encrypted codes, holograms, etc., which would facilitate early interception of altered/forged instruments.
10. What would be benefit of cheque truncation to customers of banks?
Before we answer this question, we have to understand the present system of cheque clearance. The cheques presented by customers, today, are sent to the clearing house at the drawee centres by the beneficiariesí bank. The cheques at the bigger cities, in view of the large volume of paper instruments, are subjected encoding and then to mechanical sorting and thereafter reach the drawee branches. As per the existing banking practice, these instruments received at the counters of the drawee branches are paid or returned by them. The returned instruments are passed on to the presenting customers through the process of a return clearing. Only after the return clearing process gets over, banks release the credit to the customers. The beneficiariesí account gets credited on the same day on which the draweesí account gets debited; however, the beneficiary is permitted to use the proceeds only after the return clearing process.
With the introduction of the imaging and truncation, the physical movement of instruments would be stopped and the electronic movement of images of cheques would speed up the process of settlements and ultimately alter the clearing cycles. The clearing cycle could be shortened and it would be possible for customers to realize the proceeds of cheques early. Thus cheque truncation would reduce effectively the time of float, i.e. time from the point of issue of cheque to the point of time the actual debit takes place. In case such clearing is introduced across the cities, it would ensure the realisation of inter-city instruments faster thus ensuring early availability of funds to beneficiaries.
Thus the benefits could be summarized as:
- Faster clearing cycle;
- Better reconciliation/verification process
- Better Customer Service ñ Enhanced Customer Window
- T+0 for Local Clearing and T + 1 for inter-city clearing.
- Elimination of Float ñ Incentive to shift to Credit Push payments.
- The jurisdiction of Clearing House can be extended to the entire country
- No Geographical Dependence
- Operational Efficiency will benefit the bottom lines of banks – Local Clearing activity is a high cost no revenue activity.
- Minimizes Transaction Costs.
- Reduces operational risk by securing the transmission route.
11. If the customer wants to see the paper cheques for any reason, what are the options available to the customer?
The physical instruments are required to be stored for a statutory period. It would be obligatory for presenting bank to warehouse the physical instruments for that statutory period. In case a customer desires to get a paper instrument back, the instrument can be sourced from the presenting bank through the drawee bank.