Cheque truncation system(eDesk)

Cheque Truncation System (CTS) or Image-based Clearing System (ICS), is the conversion of a physical cheque into a substitute electronic form for transmission to the paying bank. Cheque truncation eliminates cumbersome physical presentation of the cheque and saves time and processing costs.

In India, is a project undertaken by the Reserve Bank of India – RBI, for faster clearing of cheques. 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.
                      Truncation means, stopping the flow of the physical cheques issued by a drawer to the drawee branch. The physical instrument is truncated at some point en route to the drawee branch and an electronic image of the cheque is sent to the drawee branch along with the relevant information like the MICR fields, date of presentation, presenting banks etc.

Cheque truncation, would eliminate the need to move the physical instruments across branches, except in exceptional circumstances. This would result in effective reduction in the time required for payment of cheques, the associated cost of transit and delays in processing, etc., thus speeding up the process of collection or realization of cheques.

Banks and financial institutions use cheque truncation systems (CTS) to manage this process. These systems have to deal with two main processes, outward clearing and inward clearing.

Ø  In outward clearing the deposited items are scanned and the operator performs amount entry, account entry, item verification, balancing and bundling of the items at the branch level. The items are then sent to a service branch.

Ø  In inward clearing, the items received from branches are processed in the service branch where the operator performs amount entry, account entry, item verification, balancing and bundling of the items. Once verification is complete, the items are sent to the clearing house. Those items that failed validation due to discrepancies are sent back to the originating branch to be corrected.

Expected Benefits

For Banks:

1)   Banks can expect multiple benefits through the implementation of CTS, like faster clearing cycle means realization of proceeds of cheque possible within the same day.

2)   It offers better reconciliation/verification process, better customer service and enhanced customer window.

3)   Operational efficiency will provide a direct boost to bottom lines of banks as clearing of local cheques is a high cost low revenue activity.

4)   Besides, it reduces operational risk by securing the transmission route.

5)   Centralized image archival system ensures data storage and retrieval is easy.

6)   Reduction of manual tasks leads to reduction of errors. Customer satisfaction will be enhanced, due to the reduced turn around time (TAT).

7)   Real-time tracking and visibility of the cheques, less fraudulent cases with secured transfer of images to the RBI are other possible benefits that banks may derive from this solution.

For Customers:

1)   CTS / ICS substantially reduces the time taken to clear the cheques as well enables banks to offer better customer services and increases operational efficiency by cutting down on overheads involved in the physical cheque clearing process.

2)   It also offers better reconciliation and fraud prevention.

3)   CTS / ICS uses cheque image, instead of the physical cheque itself, for cheque clearance thus reducing the turn around time drastically.