Cheque: Clearing Process, CTS 2010

Cheque is like a written instruction to the bank asking it to pay the person’s whose name is written on cheque the sum of money.  Cheque is just a piece of paper, To get the money it has to be cleared Beginning January 1, 2013 Cheque Truncation System (CTS) would be implemented, whereby flow of the physical movement of cheque will be eliminated in the truncation process. Instead an electronic image of the cheque will be sent along with the relevant key information. In this article we shall explain about how the cheques were getting cleared before January 1 2014,  new CTS 2010 clearing process, new  CTC 2010 compliant cheques, old  cheques. Banks have stopped accepting non CTC 2010 cheques after Dec 31, 2013. Cheque is like a written instruction to the bank asking it to pay the person’s whose name is written on cheque the sum of money. The person who writes the Cheque is called drawer and to whom it is paid is called as payee. Cheque is just a piece of paper, To get the money it has to be cleared. Lets check out the steps in processing the cheque, also called as clearing. Lets say Ram gave a A/C payee cheque to Shyam. Let us see the sequence of events how Shyam get’s the money to his account:

  1. Shyam deposits cheque to his bank.
  2. Shyam’s bank processes the cheque and sends a request to Ram’s bank for payment
  3. If Ram’s bank has funds in his account, his bank will process the payment and release the funds to Shyam’s Bank
  4. Shyam’s Bank will processes the payment and credits the funds into his bank account.

Clearing process for non CTC 2010 cheques

  • The Payee would deposit the cheque is his/her bank. If the payee or beneficiary of cheque has an account in the same bank in the same city the funds are credited into his account through internal arrangement of the bank
  • If the beneficiary has an account with any other bank in the same or in any other city, then his banker would ensure that funds are collected from the payer’s banker through a clearing house. A clearing house is an association of banks that facilitates payments through cheques between different bank branches within a city / place. There are more than 1000 clearing houses operating all over the country facilitating cheque payments. These are managed by the RBI, State Bank of India and other public sector banks. To identify the paying bank, the clearing house looks at check’s routing number, MICR, the nine-digit number at the bottom  of your cheque, to the right of your account number. It identifies postal code/city and state of the origin of the cheque.
  • MICR of cheque

    MICR of cheque

  • The clearing house presents paying bank with the cheque along with a payment request to drawee’s bank, which checks if there are sufficient funds in the account of drawer to pay money.
  • If the drawer’s bank decides to pay then the clearing bank proceeds to settle the check, debiting drawer’s bank and crediting the payee’s bank for the value of the check.The paying bank debits the amount from the drawer’s account.

The clearing process is shown in following picture

Current Cheque Clearing Process before Jan 1 2013

Cheque Clearing Process before Jan 1 2013

Time taken to clear the cheque How fast the money would be deposited into Shyam’s account depends on whether the whether bank of Ram and Shyam cheque’s are of same city. Based on this cheques are of two kinds:

  • Local Cheques - These are cheques whereby the cheque issuer bank branch and the receiver bank branch are in the same city
  • Outstation Cheques -  These are cheques whereby the cheque issuer bank branch and the receiver bank branch are in different cities

Local Cheques - All Local Cheques must be cleared on a T+1 basis. i.e., If I Deposit a local cheque into my bank account today (irrespective of which bank the cheque is drawn or deposited) the funds must reach my account by End-Of-Day Tomorrow. Of course, this is only if the deposit happened before the cut-off time for today. For ex: Lets say ICICI Bank has a cut of time of 1:00 PM. So, all cheques deposited after 1:00 PM the previous day and those deposited before 1:00 PM today are processed in one batch and sent for payment. If you deposit your cheque after 1:00 PM, it will be processed only tomorrow and funds will be available one day after that. Outstation Cheques – Processing of Outstation Cheques depends on location of drawee’s bank.

  • Banks in State Capitals – Max 7 days
  • Banks in Major Cities – Max 10 days
  • Banks in Other Locations – Max 14 days

RBI’s Collection of Instruments has answers to questions likeWhat happens if cheques / instruments are lost in transit / in clearing process?, My bank refuses to accept outstation cheques for collection. Is there any remedy?

Cheque Truncation System CTS 2010

Cheque Truncation System (CTS) or Image-based Clearing System (ICS), in India, is a project undertaken by the Reserve Bank of IndiaRBI, for faster clearing of cheques. CTS is basically an online image-based cheque clearing system where cheque images are captured at the collecting bank branch and transmitted electronically. Truncation means, stopping the flow of the physical cheques issued by a drawer to the drawee branch. The physical instrument is truncated at some point en-route to the drawee branch and an electronic image of the cheque is sent to the drawee branch along with the relevant information like the MICR fields, date of presentation, presenting banks etc. So the process now becomes:

  • In CTS, the presenting bank (or its branch) captures the data (on the MICR band) and the images of a cheque using their Capture System (comprising of a scanner, core banking or other application
  • The collecting bank (presenting bank) sends the data and captured images duly signed and encrypted to the central processing location (Clearing House) for onward transmission to the paying bank (destination or drawee bank). For the purpose of participation the presenting and drawee banks are provided with an interface / gateway called the Clearing House Interface (CHI) that enables them to connect and transmit data and images in a secure and safe manner to the Clearing House (CH).
  • The Clearing House processes the data, arrives at the settlement figure and routes the images and requisite data to the drawee banks. This is called the presentation clearing. The drawee banks through their CHIs receive the images and data from the Clearing House for payment processing. The drawee CHIs also generate the return file for unpaid instruments.
Image Clearing System

Image Clearing System

For customers clearing process of CTS 2010 is no different from the use of traditional clearing infrastructure for clearing paper cheques. Customers continue to use cheques as at present, except to :

  • Use image-friendly-coloured-inks while writing the cheques
  • Avoid any alterations or corrections thereon. For any change in the payee’s name, amount in figures or in words, fresh cheque leaves should be used by customers, as this will facilitate smooth passage through image based clearing system.

As images of cheques (and not the physical cheques) alone need to move in CTS:

  • It is possible for the removal of the restriction of geographical jurisdiction normally associated with the paper cheque clearing. Hence cheques would be multi-city.
  • This would result in effective reduction in the time required for payment of cheques, the associated cost of transit and delays in processing, etc.

Cheque truncation eliminates the need to move the physical instruments across branches, except in exceptional circumstances, thus speeding up the process of collection or realization of cheques. The Reserve Bank had implemented CTS in the National Capital Region (NCR), New Delhi and Chennai with effect from February 1, 2008 and September 24, 2011. After migration of the entire cheque volume from MICR system to CTS, , the traditional MICR-based cheque processing has been discontinued in these two locations. Based on the advantages realised by the stakeholders and the experienced gained from the roll-out in these centres, it was decided to operationalise CTS across the country by Jan 1 2013. For more details read RBI’s FAQ on Cheque Truncation System

Cheques for CTS 2010

All types of cheques can be presented for clearing through CTS. But to achieve standardisation of cheques issued by banks across the country and to reduce cheque frauds set of benchmarks called as CTS-2010 standard are introduced.These include provision of mandatory minimum security features on cheque forms like quality of paper, watermark, bank’s logo in invisible ink, void pantograph, etc., and standardisation of field placements on cheques. As shown in picture below (Ref: Economic Times Check your cheque status)

Cheque features under CTS 2010

Cheque features under CTS 2010

Sample old and new(CTS 2010 compliant) cheques issued by State Bank of India (SBI) are shown below

State Bank of India Cheque before CTS 2010

State Bank of India Cheque before CTS 2010

  1. Branch address with IFSC code printed top of the cheque
  2. Date in dd/mm/yyyy format with boxes
  3. Printers name with CTS-2010 in left side of cheque
  4. A pantograph which shows VOID/COPY while taking photocopy of the cheque below the account number
  5. New rupee symbol instead of bilingual format
  6. “Please sign above” is mentioned on bottom right of the cheque
  7. Watermark “CTS INDIA” to be visible cheque is held against any light.
  8. Ultra Violet logo of Bank printed at upper left corner of cheque to be visible in UV lamps
SBI cheque with CTC 2010 compliance

SBI cheque with CTC 2010 compliance

Sample old and new(CTS 2010 compilant) cheques issued by HDFC bank are shown below

HDFC bank cheque before CTS 2010

HDFC bank cheque before CTS 2010

HDFC bank cheque for CTS 2010

HDFC bank cheque for CTS 2010

HDFC bank cheque for CTS 2010

Krishna has collected CTS-2010 Standard and Old Bank Cheques of India of Canara Bank, IndusLand Bank etc.

How does CTS 2010 affect customers

  • If you have issued post-dated cheques (PDCs)(say for your home or auto loan EMIs), you will have to issue fresh cheques.
  • If you have opted for the ECS (electronic clearing system) mode the new system will not impact you.
  • For issuing cheque after Mar 31 2013 you need cheques which are CTS-2010 compliant.

Banks have stopped accepting non CTC 2010 cheques after Dec 31, 2013. Related Articles:

  • Bemoneyaware Cheque: explains Parts of cheque, Kinds of cheque(Blank, Bearer, A/C Payee), Alternatives to cheques(Demand Draft, Travellers Cheques,Money order, ECS, NEFT, RTGS)

In this article we explained how the cheques were getting cleared before January 1 2013,  new CTS 2010 clearing process, new  CTC 2010 compliant cheques, old and new cheques.

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