Cheque Truncation System (CTS)

You might have heard your parents talk about some banking service or another at some point of time in your life. If you are big enough, you might even have an account that you can operate yourself. 

Even though young children are also allowed to have their accounts but they are not allowed to perform transactions unless they turn 18. 

Most people have only heard of deposits, withdrawals, and/or loans when it comes to banking services. But the truth is that banks offer a very wide range of services except these. 

What are the different types of services or procedures that a bank undertakes to serve its customers?

Well, several. Yes, there are too many policies and benefits for people which are designed keeping in mind the best of customers as well.

What is Cheque Truncation System?

Before we discuss the details of the Cheque Truncation System, you should know the meaning of the term “cheque” and how it works.

Cheques, also spelt as Checks, are a document that orders a bank to pay a certain person a certain amount from the person’s account to the person in whose name the cheque has been made.

Cheque Truncation System (CTS) is a process of enabling the electronically clearing of a cheque instead of clearing it physically. 

How did the Cheque Truncation System come into being and why?

The CTS or, Image Processing System (ICS) was presented and started by the Reserve Bank of India in the year 2008. This project was started for faster clearing of the cheques.

The Reserve Bank of India is the central bank of India. The Reserve Bank of India is the regulatory body of India for all banking services and is responsible for the issuing of currency notes.

The Reserve Bank of India constantly strives to work for the betterment of the economic conditions while safeguarding the interests of the customers. It aims to accelerate the economic development of the nation by putting efforts to make the experiences regarding banking services as smooth, fast, and safe as possible.

What are the benefits of the Cheque Truncation System?

Whenever a new policy or method is used, people feel compelled to ask what benefits it has to offer, and rightfully so. Since customers are an important stakeholder of the banking services, people have the right to know what was the thought behind bringing the cheque truncation system and what are its benefits.

Some benefits of the cheque truncation system are:

• Time, money, and efforts faced by banks to the clearinghouses due to the physical clearing are almost eliminated. Since the CTS system discontinues the physical clearing of the bank documents, the burden that earlier fell upon the people of the banks and clearing houses no longer exists. It does not only reduce the burden of labor but also reduces the time consumed during physical clearing significantly.

• Less clearing-related frauds. As we know that it is easy to commit fraud when things are being done manually. To reduce the burden on people as well as to tackle fraud, the government has already made most activities electronic. Since it is difficult to commit fraud when computers and other electronic gadgets are performing the jobs and keeping records, frauds become less plausible.

• Several people earlier complained of their cheques being misplaced or lost. This problem has found its ultimate solution with the introduction of the cheque truncation system. Performing tasks electronically not only shares the workload and reduces the plausibility of fraud but also ensures greater efficiency.

• The Cheque Truncation system is safer and more secure. No matter how attentive or efficient, a human being can commit an error more frequently than is expected of a machine. CTS is programmed keeping in mind the nature of the job and its requirements. Therefore, the CTS is more safe and more secure as compared to the physical clearing of the cheques.

• The Cheque Truncation System process flow provides quicker clearance of the cheques as compared to the physical clearing. Since manually clearing a cheque consumed more time and was considered a hindrance in the smooth rendering of the banking services, the RBI introduced this system to ensure quicker clearing of cheques.

• One of the most important benefits of the CTS is that it reduces the operational risk as well as the risks related to paper clearing.

Final Overview

The Cheque Truncation System process flow ensures the smooth flow of cheques from people to banks within a grid making it easier for people to avail of the service. People who earlier avoided accepting cheques due to the difficulties that arose in getting a cheque cleared are especially happy about this move.