cheque truncation

Submitted BY:POOJA RAVAL (86)JAYDIP SHAH (90)NIDHI SHAH (91)SHAISHAV THAKORE (96)

INTRODUCTION

Banking sector is considered the heart of an economy

Cheque is the most widely accepted Negotiable Instrument to settle transactions in the world. Paper cheques provide consumers and businesses critical alternative payments mechanism.

To improve the efficiency of the Cheque Clearing Cycle, Reserve Bank of India has decided to introduced Cheque Truncation System (CTS) in India.

WHAT IS CHEQUE TRUNCATION:

A system of cheque clearing and settlement between banks based on electronic data / images or both without physical exchange of instrument.

HISTORY OF CTS:In 1960 machine readable codes were added to the bottom of cheques in MICR format which allowed the clearing and sorting process to be automated.

The criteria for banks participating in the Cheque truncation system are:

I. Membership of the clearing house in the NCR.

II. Membership of the Indian Financial Network (INFINET)

CONDITION FOR MARKET TO FUNCTION EFFICIENTLY

We need a strong financial sector for high economic growth

Sound market infrastructure are required for stimulating financial markets

Market can function efficiently if

Clearing and settlement system functions efficiently Money market arrangements exist to facilitate quick

settlement Security market transactions are widespread and settled

quickly Legal system exists to enforce contracts

Cheque Truncation is required

a.Existing Status of Cheque as Paper instrument

b. Current Cheque Clearing Process Timelines –

o Local Clearing (including return on T+1) T +2, o High Value Clearing (including return on T+0) T+1,o Inter City Clearing T+ 5(+) days depending upon the end-points

c. Weaknesses of the existing process

CHEQUE TRUNCATION SYSTEM

a. Uniqueness of our Project the first project in the world incorporating all the three components of

CTS- Proof of Deposit, Settlement and an eight year long Archive

All instruments are imaged- irrespective of value

b. Preparedness Major Retail Payment System initiative – Pilot being rolled out in New

Delhi in March 2006

As per our payment system vision , next stop is the three remaining metros and destinations with enhanced IT presence and networking capabilities

Continue……

c. International Experience

Geographically smaller countries were quick to implement CTS

Denmark and Belgium showed the way in early 1980s

US, UK and France dominate in cheque transactions. In US 237

cheques are used on average per person per year

SALIENT FEATURES

Within the presenting bank the point of truncation could be decided by each individual member bank providing for Service Bureau models where banks can approach or set up Service Bureaux for capturing images and MICR data.

Settlement will be generated on the basis of current MICR code line data.

Grey scale technology will be deployed for imaging.

Public Key Infrastructure will be deployed to protect images and data flow over the network.

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.

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. .

Drawers could consider using holograms, barcoding or such other features, which would add to the uniqueness of the images.

RBI IS PROPOSING TO IMPLEMENT CHEQUE TRUNCATION

Banks have to decide the point of truncation and have to ensure that the images are digitally signed after their capture.

digitally signed images would reach the service branches of the drawee branches clearing house interface.

The service branches have to ensure that these images are moved across their branches to ensure their processing.

RBI SERVICES TO FACILIATE CHEQUE TRUNCATION

System development

Installation at the clearing house

Interfaces at the banks

End network

Awareness propagation and training

RBI WORKING ON CHEQUE TRUNCATION

Cheque truncation facility is only for MICR

cheques

No correction is allowed

Pilot project in NCR

Plan to provide function in other three metros

INFRASTRUCTURE REQUIREMENT

Integration with the bank's database of customers

Integration with the banks current system

High speed internet connection

Integration with the hardware i.e. scanners,

computers and printers.

Integration with the Clearing House Interface

PROCESS OF CHEQUE TRUNCATION

BENEFITS TO CUSTOMER

Faster clearing of cheque

T+0 for local clearing and T+1 for intercity

clearing

Quicker settlement of payment

Customer will get faster services

BENEFITS TO BANK

Operational efficiency

Minimizes transaction cost

Greater customer satisfaction

Easy reconciliation & verification system

CHALLENGES

Integration with the current system

To provide good services, it is necessary to co-ordinate new system with the old system. It creates challenge for bank to co-ordinate new system with the current system. If there is no co-ordinaton, this will negatively affect the banking services also.

Security Whenever there is computer base system, it create question

of security. Cheque truncation system increase cases of fraud & hacking also. It is necessary for the bank to provide security to each transaction.

Continue…

Dependence on technology For the Cheque truncation, technology support is required. If

incase problem with the software, whole process is affected.

Customer acceptance To provide new services, it is necessary to know whether

customer would adopt this system or not. Cheque truncation system required customer migration from old system to new system, so it create question of customer acceptance for the bank.

OPPORTUNITIES

New product offering Cheque truncation add new product offering into the

banking system. New product offering attract the new customer for the bank & retain old customer by providing higher customer satisfaction.

Product differention Cheque truncation differ your product from other bank

financial services. Product differention create opportunity

for the bank.

Continue…

Improve customer satisfactionBecause of Cheque truncation system, customer will get good services. Increase in standard of services will increase the customer satisfaction

Comparison Between India And Us Of Cheque Truncation

LATEST NEWS

Nearly 300 from 125+ Banks, Insurance, Business Schools, IT Cos participate in Banknet's Sixth Annual Conference on Payment Systems on 22nd Jan'10, at Mumbai. This was the first major conference to focus on "RBI’s Vision for Payments Systems in India for 2009-12".Banknet Master Class was also conducted at the conference.

Conference also feature a Technology Exhibition. Seventh Edition of Payments Conference will be

organised in January 2011.

CONCLUSION

faster settlement of cheque Minimize Lead time Service standard of indian bankiing system