Cheque Truncation System (CTS) - Explained

Published on Wednesday, November 19, 2014
I’m sure you must have come across the acronym CTS many a times during your banking studies; today we aim to go further from the acronym and actually understand what CTS is all about! 

1. What is Cheque Truncation or truncation of cheques?

Truncation literally means stopping or cutting short. Thus, truncation of cheque means stopping the flow of the physical cheque by the presenting bank (bank where the cheque is presented/dropped off!)
en-route to the drawee bank’s (bank on which the cheque is drawn on) branch.

Instead of the physical cheque, an electronic image of the cheque is transmitted to the drawee branch, along with relevant information like data on the MICR band, date of presentation, presenting bank, etc.
Cheque truncation, thus, removes the need to move the actual physical cheque from branch to branch.

2. Process of CTS:

Basically there are three levels, namely, at the Presenting Bank, the Clearing House and the Drawee Bank. The following should help with understanding the process!

Cheque Truncation System

3. Benefits of CTS:

(i) CTS speeds up the process of collection of cheques,
(ii) Reduces the scope for clearing-related frauds or loss of instruments in transit,
(iii) Lowers the cost of collection of cheques,
(iv) Removes reconciliation-related and logistics-related problems,
(v) Reduces the time of clearing cycle – that is faster processing of cheques and payment in favour of the customer,
(vi) Reduces scope for frauds inherent in paper instruments,

Thus, as you can see CTS increases efficiency of the entire system.

4. What is CTS -2010?

 CTS-2010 is a standard benchmark recommended by RBI for the standardisation of:
(i) cheque forms (leaves) in terms of size,
(ii) MICR band,
(iii) quality of paper, having protection against alteration, should be sensitive to acid/alkali/bleach etc. and should not glow under UV light – CTS -2010 paper is UV-dull!
(iv) watermark, all cheques to carry a standardized watermark, ‘CTS INDIA’ – should be oval and 2.6 to 3 cms in diameter,
(v) mandating colour schemes in pastels to ensure clarity of image etc.,

Thus, CTS-2010, standardizes the cheque to conform to certain features for identification and security purposes.

All banks providing cheque facility to their customers have been advised to issue only 'CTS-2010' standard cheques.

Cheques not complying with CTS-2010 standards will be cleared at less frequent intervals i.e. twice a week up to October 31, 2014 and weekly once from November 1, 2014 onwards.

Okay, so, now that we know about the basics of CTS, lets learn some trivial points relating to CTS-2010 specifically:

Some important points relating to CTS-2010

1. The Reserve Bank has implemented CTS in the National Capital Region (NCR), New Delhi, Chennai and Mumbai with effect from February 1, 2008, September 24, 2011 and April 27, 2013 respectively.

2. The cheque images can be Black & White, Gray Scale or Coloured,
  • Black & White images are light in terms of image-size, but do not reveal all the subtle features that are there in the cheques,
  • Coloured images are preferable, but they increase storage and network bandwidth requirements,
  • Gray Scale images are mid-way and most preferable,
  • CTS in India use a combination of Gray Scale and Black & White images.
  • There are three images of each cheques that need to be taken - front Gray Scale, front Black & White and back Black & White.

3. Customers should use image-friendly coloured inks while writing cheques and avoid any alterations / corrections thereon.

4. Images that do not meet the specifications are rejected.

5. The security, integrity, non-repudiation and authenticity of the data and image transmitted from the paying bank to the payee bank are ensured using the Public Key Infrastructure (PKI).

6. The PKI standards used are in accordance with the appropriate Indian acts and notifications of Controller of Certifying Authority (CCA).

7. CTS is compliant to the requirements of the Information Technology Act, 2000.

8. It has been made mandatory for the presenting bank to sign the images and data from the point of origin itself.

9. Under CTS the physical cheques are retained at the presenting bank level and do not move to the paying banks.

10. A customer can be provided with the images of cheques duly authenticated, is such a need arises.

11. Customer can also demand to see the physical cheque – for that it would need to be sourced from the presenting bank, for which a request should be made to his/her bank.

12. According to CTS-2010, the presenting banks which truncate the cheques will have to preserve the physical cheque for a period of 10 years.

That was one helluva CTS related piece! 

I decided on this topic because many friends of mine, who faced interviews in the last 1 year, have been asked about it – either the basics or the detailed process!

People who were from commerce background could answer the basics, but faltered with the process and details; and the ones not from commerce were left blinking their eyes at the interviewers!

Let us prepare ourselves better and learn from the mistakes of others!!!

I hope you found this one informative!

Good day for now!

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