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| Capitalstars Investment Advisor |
Cheque Truncation speeds up the process of collection of cheques resulting in better service to customers, reduces the scope of loss of instruments in transit, lowers the cost of collection of cheques and so on.
Those who use cheques can expect cheque clearing to become faster and safer across the country with the RBI now planning to implement cheque Truncation system (CTS) pan-India from September 2020. Till now CTS was only operational in major clearinghouses.
As per the policy statement, RBI said, The Cheque Truncation System (CTS), which is currently operational at the major clearinghouses of the country, has stabilized well and it has made large efficiency gains. In view of this, a pan India CTS will be made
What is Cheque Truncation System?
Truncation is the process of stopping the flow of the physical cheque issued by a drawer at some point by the presenting bank en-route to the paying bank branch. In its place, an electronic image of the cheque is transmitted to the paying branch through the clearinghouse, along with relevant information like data on the MICR band, date of presentation, presenting bank, etc. Cheque truncation thus obviates the need to move the instruments across bank branches, other than in exceptional circumstances for clearing purposes. This effectively eliminates the associated cost of movement of the physical cheques, reduces the time required for their collection and brings elegance to the entire activity of cheque processing.
Benefits of Cheque Truncation System
Cheque Truncation speeds up the process of collection of cheques resulting in better service to customers, reduces the scope of loss of instruments in transit, lowers the cost of collection of cheques, and removes reconciliation-related and logistics-related problems, thus benefitting the system as a whole.
With the other major products being offered in the form of RTGS and National Electronic Funds Transfer (NEFT), the Reserve Bank has created the capability to enable inter-bank and customer payments online and in near-real-time. However, cheques continue to be the prominent mode of payments in the country. Reserve Bank of India has therefore decided to focus on improving the efficiency of the cheque clearing cycle. Offering the Cheque Truncation System (CTS) is a step in this direction.
In addition to operational efficiency, CTS offers several benefits to banks and customers, including human resource rationalization, cost-effectiveness, business process re-engineering, better service, adoption of the latest technology, etc. CTS, thus, has emerged as an important efficiency enhancement initiative undertaken by Reserve Bank in the Payments Systems arena.