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 clearing house, along with relevant information like data on the MICR band, date of presentation, presenting bank, etc.
This means that with this system, physical cheques will not move for clearing at different banks. This enables the outstation cheques to get cleared in a single day and also the associated cost with the movement of physical cheques gets eliminated.
CTS has been implemented with a grid-based approach in New Delhi, Chennai and Mumbai with effect from February 1, 2008, September 24, 2011 and April 27, 2013 respectively. The illustrative jurisdiction of the three grids are indicated below:
- New Delhi Grid: National Captial Region of New Delhi, Haryana, Punjab, Uttar Pradesh, Uttarakhand, Bihar, Jharkhand and the Union Territory of Chandigarh.
- Chennai Grid: Andhra Pradesh, Telangana, Karnataka, Kerala, Tamilnadu, Odisha, West Bengal, Assam and the Union Territory of Puducherry.
- Mumbai Grid: Maharashtra, Goa, Gujarat, Madhya Pradesh and Chattisgarh.
With the introduction of this image based clearing facility, the traditional MICR-based cheque processing has been discontinued across the country.
Facilities provided by cheque truncation system (CTS):
- All cheques drawn on bank branches falling within in the grid jurisdiction are treated and cleared as local cheques.
- The associated cost with the movement of physical cheques gets eliminated in case of same jurisdiction.
- There is no fear of loss of physical cheques while collection.
- There are no charges for customers in the clearing process.
- Efficient for banks and customers both.
If a customer wants to see the physical cheque, he can request it to the bank. To meet legal requirements, the presenting banks which truncate the cheques need to preserve the physical instruments for a period of 10 years.
All banks providing cheque facility to their customers have been advised to issue only ‘CTS-2010’ standard cheques. The “CTS-2010” standard prescribes certain mandatory and optional security features to be available on cheques, and also it adds to the uniqueness of the images.
Security in the transmission of images:
The transmission of the images of the cheques is completely secured and authentic. Security is implied using the Public Key Infrastructure (PKI). Images that do not meet the specifications are rejected. As the payments are made on the basis of the images, it is essential to ensure the quality of the images.
In case of alterations/corrections in cheques:
If a customer wants to do any alterations or corrections in the cheque like payee’s name and amount, he will have to issue a new cheque, and cannot do on the same cheque. This has been introduced to curtail cheque related frauds.