RBI Extended the Cheque Truncation System across all Bank Branches
The Reserve Bank of India (RBI), on 15.03.2021, has passed a Notification No RBI/2020-21/ 107 DPSS.CO.RPPD.No.SUO 21102/04.07.005/2020-21, which states that the Apex Bank has extended the Cheque Truncation System across all bank branches.
The notification is issued in reference to Statement on Developmental & Regulatory Policies, dated 05.02.2021, wherein the RBI had announced PAN-India coverage of Cheque Truncation System by bringing all the branches of banks operating in the country under an image-based CTS clearing mechanism.
This said directive is issued under the provisions of section 10 (2) read with the provisions of section 18 of the Payment and Settlement Systems Act 2007.
In this learning blog, we will deal with the idea of the Cheque Truncation System, together with the need for extending the cheque truncation system across all the branches of banks.
Concept of Cheque Truncation System
The term Truncation System of Cheque denotes a cheque clearing mechanism undertaken by the Apex Bank, i.e., RBI, for speedy cheque clearance.
Further, the term truncation specifically means a course of restricting the flow of a physical cheque in its way of clearance. That means instead of physical clearance, an electronic image of the cheque is transferred with significant essential data.
Furthermore, the Cheque Truncation System or CTS brings elegance to the whole course of cheque processing and clearing and provides numerous benefits to banks, such as cost and time savings, cost effectiveness, inclusive of business process re-engineering,human resource rationalization, and enhanced customer service.
Need for Extending Cheque Truncation System
The Cheque Truncation System is in use since the year 2010 and presently covers about 150000 branches all over the country. It shall be noted that all the 1219 non-CTS clearing houses have been migrated to the Truncation System of Cheque effective September 2020.
However, it was seen that there are bank branches that are outside the ambit of any formal clearing mechanism and their customers face hardships and issues due tothe high cost involved and longer time taken in the collection of cheques presented by them.Further, to leverage the availability of the Cheque Truncation System and to provide a uniform customer experience regardless of the location of her/his bank branch, it has been declared to extend Cheque TruncationSystem across all bank branches in India.
To facilitate this, banks will now have to confirm that all their branches take part in image-based CTS under respective grids by 30.09.2021.
Also, it shall be noted that they are free to embrace a model of their choice, such as deploying suitable infrastructure in every bank branch, or following a hub and spoke model, etc., and the respective banks will coordinate with the concerned Regional Offices of RBI to operationalize this.
Moreover, banks are advised to inform RBI about the roadmap to achieve panIndia coverage of the Truncation System of Cheque and furnish a status report prior to 30.04.2021.
In a nutshell, RBI, on 15.03.2021, has passed a Notification, which declares extension of Truncation System of Cheque across all bank branches. The same was in reference to the Statement on Developmental & Regulatory Policies, dated 05.02.2021.