Tuesday, December 4, 2012

Cheque Truncation System – CTS 2010

Using a Cheque is something we do all the time. Right from paying bills to transferring money between friends/family happens via cheques. It has become such a widely used tool that unscrupulous elements have started misusing them. To avoid misuse of cheque instruments, the Reserve Bank of India cut the validity of cheques from 6 months to 3 months at the beginning of 2012. This ruling became effective 1st April 2012 and there was even an article titled “Cheques Validity Cut Short” in our blog. But now, the RBI has come up with yet another ruling that is bound to make processing of cheques much easier for banks as well as making them safer for all the customers who use it. As part of this ruling all old cheque books & leaflets will be invalid starting 1st January 2013. The purpose of this article is to elaborate on what this ruling is, why it came up and what we must do in these last 4 weeks of December to be prepared to face the upcoming rule changes starting 2013.

Why Would my Cheque become Invalid?

The RBI has come up with a new standard for using cheques called “Cheque Truncation System” or “CTS 2010” which all banks have to follow. As per RBI, only those cheques that are CTS compliant can be used as legal monetary instruments beginning 2013.

What is this Cheque Truncation System or CTS 2010?

Cheque Truncation System or CTS 2010 is just another fancy name for the new and improved way of processing cheques by banks in India.

How is it different from the existing standard?

Currently, all cheques are sent directly (In physical mode) to the other bank for clearance. This means that, if you have an ICICI Account and I give you a cheque from HDFC Bank, ICICI Bank will send the cheque you deposited to HDFC Bank to confirm that the cheque is valid and then receive the payment on your behalf and credit it into your account. This is the reason why other bank cheques take at least 2-3 days to get credited into your bank account.

Starting 2013, banks will just send a digital (scanned) version of the cheque to the other bank and technically the clearance can happen very fast (even on the same day).

This essentially means three very important benefits:

1. Easier Processing for both banks
2. No physical transfer of cheques – so lesser delays
3. Quicker receipt of funds – For Customers
From the customer’s point of view, I don’t care what the bank does to get my funds. All I care about is how fast will I get my money and this CTS 2010 standard can help banks clear funds within the same or at max the next day instead of the 2 to 3 days timeframe that prevail currently.

What are the Features of CTS Compliant Cheques?

The following are some features of cheques that will be CTS compliant:

• They will have the wordings “Please sign above this line” at the bottom right hand side corner
• They will have a watermark with words “CTS INDIA” which can be seen against a light
• An invisible bank logo will be placed with an Ultra Violet Ink which can be seen only under UV Scanners
• It will not allow any changes/alterations to the cheque. If there is any mistake or correction, the cheque will become invalid
• “Payable at par at all branches of XXXX Bank in India” text will be printed at the bottom of the cheque
• The Bank’s IFSC and MICR Code will be present in the cheque
• Signatures will have to be made using a dark ink so that your signatures can be scanned properly

Trivia:
Up until now, if you make a mistake, you can just correct it and counter-sign near the correction/alteration and the cheque will be deemed valid. Starting 2013, these cheques will be considered invalid. If there is any mistake in the cheque, you got no other choice but to cancel/destroy it and write a new one…

All these features would ensure uniformity across cheques issued by various banks as well as help banks scrutinize cheques properly, which in turn is expected to act as a deterrent against cheque frauds. Below is a Sample of how these new CTS 2010 cheques must look like as per the RBI:


To make things easier, below is how a new cheque will look from Kotak Mahindra Bank – Image courtesy – Internet.


What should you do?

There are many things that you may have to do as a customer.
“Contact your bank and request a new cheque book that is CTS 2010 compliant” because all your existing cheque books will be invalid/unusable starting 2013.

Do you have a few queries about this whole CTS 2010 standard? If so, read on. I have tried to answer a few of the basic queries that you may have.

1. What should I do with post-dated cheques that I have already given to other people/institutions/banks?

All post-dated non-CTS cheques will be useless/worthless starting 1st January 2013. So, if possible we must collect those signed (non-CTS) cheques from whoever we gave them to and destroy them. This is to ensure that non-CTS cheques will not be presented in the clearing system. This kind of scenario typically would arise if you have taken a loan where the lending bank/institution asks you to submit a few post-dated cheques. Contact the bank that has actually given the loan and ask them to return the old cheques and give them newer CTS 2010 compliant cheques.

2. What should I do if I don’t remember who I gave a few of the non-CTS cheques to?

Technically speaking, this is a scenario which we must strive to avoid. Whenever you issue a cheque make sure you note down the person you give it to, in the front page of the booklet. That is the whole point of having the first page that has those blank spaces to record your cheque usage so that you can refer to it in future.

Ok, coming back to the question, don’t worry. if you don’t remember who/where you have given the cheque to, go back to the front page of your cheque book and note down all the cheque numbers. Call up your bank customer care and tell them that you don’t remember whom you have given it to. They will block those cheques. An important point to remember is, all non-CTS cheques will automatically get cancelled from the system starting 1st January 2013. So, you need not worry too much about non-CTS cheques.

3. What should I do with my unused cheques?

Technically speaking, Nothing. Just tear them up into small pieces and dispose them. Some banks like ICICI and SBI have asked customers to return their old/unused cheques at their respective branches so that they can dispose them safely.

4. What should I do with cheques that are post-dated and given to me by others?

Ask the person who gave you those non-CTS cheques to read the answer to question no.1 in this article. If the person who gave you the non-CTS cheque doesn’t approach you for the replacement, you can contact them and ask them to reissue a new cheque as the one you currently hold will not be valid after 31st December 2012.


Remember:

If any cheque that you have given to a financial institution like for a home loan or credit card bounces, you have to incur cheque bounce charges plus the negative effect it could have on your credit report. So, make sure you replace all your old non-CTS compliant cheques with the new and more secure cheques.

Happy Banking!!!

4 comments:

  1. it is said that it will cleared in one day then why it is clearing on next day then how the clearanace time benefit will be availabale to customer?

    ReplyDelete
    Replies
    1. Rahul - One day means - one day from the date the cheque was picked up for clearing. Cheques are usually picked up for clearing around 1 or 2 pm every day. So, if you deposit your cheque before that cut-off date, it will be picked up today else it will be picked tomorrow only.

      Once it is picked, it is sent for clearance and this usually takes 1-2 working days. Other bank cheques take an average of about 2 working days across the globe. So, in this regard, I feel our banking system is very good.

      Delete
  2. is there any circular of rbi for cts cheque clearing time and can it be delayed in cts or even in normal course then what are the rights with us to say to bank that compensate us for loss of interest due to delay

    ReplyDelete
    Replies
    1. None that I am aware of Rahul. A cheque essentially means that money is transferred from one bank account to another and there is a very real possibility that a cheque may not get honored (cheque bounce). So, no bank will accept the liability to pay interest in such a situation.

      Usually cheques get delayed if there is some problem with the cheque or the bank accounts involved. Ex: Name of payee not clear or does not match exactly with your bank account. Or, not sufficient funds in the drawee bank acc. Or, drawee bank account blocked for some reason etc

      Delete

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