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[Economy] Cheque Truncation System (CTS-2010): Meaning, Advantages explained
- What is cheque clearing house?
- What is MICR code?
- What is Cheque Truncation System (CTS)?
- What are the benefits of Cheque Truncation?
- CTS-2010
What is cheque clearing house?
- Suppose a party from Delhi pays you via cheque of Citibank and you have account in SBI, Ahmedabad. You deposit this cheque in your area’s SBI branch.
- Now the SBI branch manager would send his [overworked, underpaid] Bank PO to Citibank’s office in A’bad. He’d show the cheque, collect the cash and return to deposit the money in your account.
- But SBI would be getting thosands of cheques everyday- some from ICICI, some from Citibank, some from axis and so on. SBI cannot send its staff to every other bank to get the cash, that’d be extremely time consuming.
- Therefore To simplify this cheque transection process, each bank will send a representative to a central place and exchange cheques drawn on each other.
- This centralized place is called clearing house/processing house.
- Reserve bank of India is act as clearing house.
- In cities where RBI’s office doesnot exist, usually SBI or other public sector bank acts as the clearing house.
What is MICR code?
- By seeing the PIN code, a postman can know the destination of an envelope. Same way by using the MICR code, RBI (clearing house) can know the name of a bank, location of its branch from where the cheque was issued= faster clearing of cheques.
- MICR = Magnetic ink character recognition.
- At the bottom of every cheque, you’d see some black colored numbers with weird looking fonts. That is the MICR code.
- These numbers are printed with a special ink containing iron oxide, so that it can be automatically read by a special machine.
- Ofcourse this sounds similar to bar codes, but there is a difference: unlike barcode, you can read the MICR code and decode it, without the use of special machines.
What is Cheque Truncation System (CTS)?
- Under the old paper cheque based clearing, the SBI bank will send the paper cheque to the clearing house and get the money and then transfer it to your account.
- This is still time consuming. because SBI (or any bank) would need to physically move the cheques to a clearing house.
- So RBI came up with a new idea known as ‘Cheque Truncation System (CTS)’.
- In this Cheque Truncation System (CTS), SBI branch will not send the paper cheque to the clearing house, but instead, it’d merely scan the cheque, and electronically send the image + MICR data, to the clearing house.
- From the clearing house, the data would goto the paying bank (Citibank in our example), they will inspect the MICR data, signature on the scanned image and release the money to SBI.
- This process is faster and more safer than the conventional paper-cheque clearing method.
What are the benefits of Cheque Truncation?
- It Eliminates the time, money and manpower wasted during physical movement of cheques (from banks to clearing house).
- Thus, Cheque Truncation =faster clearing = better service to customers,
- Cheque Truncation system reduces the scope for clearing-related frauds
- There is no fear of losing cheque in transit.
CTS-2010
- In the year 2010, RBI came up with the guidelines for Cheque Truncation system. (CTS 2010)
- The banks would need to upgrade a few things to comply with CTS 2010 standards of RBI.
- For example, in their branch offices, they would need to buy scanners and install special software provided by RBI, to securely transfer and receive the scanned image and data.
- They may need to change the color-scheme of chequebooks so that signature and handwriting is visible in the scanned image. And so on…
- Problem: some jholachhaap banks, are yet to comply with RBI’s CTS 2010 guidelines.
- Hence recently RBI issued a warning to all banks: upgrade your banking infrastructure according to CTS 2010 guidelines, before the end of Sept. 2012
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Excellent explanation. Keep it up
how i will reconize it is cts 2010 cheque or not give me some suggestion
awsome jahkass…sir ji
Dude u rock..pls con’t this grt work
With intention to flaunt,just intend to add :
Cheque Truncation System (CTS) was introduced and implemented in the National Capital Region (NCR) in February ’08 on a pilot basis. The number 2010 in ‘CTS-2010’ is because the guidelines for Cheque Truncation System came up in the year 2010.
Please overlook this comment as I missed to put “NO” before intention.
With no intention to flaunt , just intend to add :
Cheque Truncation System (CTS) was introduced and implemented in the National Capital Region (NCR) in February ’08 on a pilot basis. The number 2010 in ‘CTS-2010’ is because the guidelines for Cheque Truncation System came up in the year 2010.
hi..very nice bt what benifit local bank?
Sir, I have to give my Indian economic services interview. Can yo please suggest what all should I do for it?
I will be grateful if u can guide me somewhat for this.
explainedin easy manner ..thank u sir
Very nice article for giving the good feed back on CTS 2010-Cheque Truncating System.Thanks u very much.
very nice article.
please explain about grid based approach of CTS
SIR WHAT IS Tapering by US Fed AND HOW IT WILL IMPACT INDIAN ECONOMY SIR PLEASE EXPLAIN IT IN SIMPLE LANGUAGE
system is good but let clearing as per our view
MY BANKER IS ASKING ME TO WRITE MY ACCOUNT NUMBER AS WELL AS MY MOBILE
NUMBER ON THE BACKSIDE OF THE CHEQUE WHEN I AM DEPOSITING THE CHEQUE
FOR CLEARING. I WANT TO KNOW THE TWO THINGS
1. WHETHER IS THIS RESERVE BANK OF INDIA GUIDELINE.
2. WHETHER THIS GUIDELINE IS APPLICABE TO CHEQUES ISSUED BY CUSTOMERS
ON THE SAME BRANCH OF THE SAME BANK.
thank you… very lucid and simple.
BM of LENA bank……hahahhaha lol :P
very funny and enlightening… thnx sir :)
sir, ur representation of articles just amezing…vry easy 2 understand…thanx a lottt…
Is alteration in cheque is accepted in this system?
Career Launcher Mock test question?? ;)
so that UPSC may ask a question on this topic. AND LENA BANK JUST AWSOME GREAT WORK SIR ONCE AGAIN
Is alteration of cheques allowed under this system?
No alteration isnt allowed in this
Wonderfully Explained … Can explain to any one about this … Nicely Simplified by Mrunal … Good Sense of humour ‘to harass UPSC aspirants’
IT was nice to understand the conept of cheque clearing & cts.
Sps on mango ban by EU explained nicelyand easily pl throw some light on Tbt
Excellent explanation and luk too simple to understand.
mrunal sir, on behalf of upsc aspirants” ur great thalaiva”….
why use new type of cheques… old cheques could have been scanned and sent….please clear…
what an idea sir ji….. never seen any other blog as good as this
From today onwards you would be called as “RAJINIKANTH of Aspirants”
Why to send scanned copy of cheque to clearing house ,why not directly send that scanned copy of cheque directly to citi bank .what is the need of clearing house or rbi as intermediaries..
Is it to reduce. fraud or something else.
pls clear sir ?