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:
Membership of the clearing house in the NCR. II. Membership of the Indian Financial Network (INFINET)
I.

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

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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.

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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.

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Improve customer satisfaction
Because 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 "RBIs 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