In News:

The Reserve Bank of India (RBI) has announced the transition of the Cheque Truncation System (CTS) from batch processing to a continuous clearing mechanism, with settlement on realisation, to be implemented in two phases. This reform aims to further enhance efficiency, reduce delays, and strengthen the digitalisation of cheque-based transactions.

About Cheque Truncation System (CTS)

• Introduced by RBI to speed up cheque clearance and minimise physical movement of instruments.
• Process: Physical cheques are truncated at the collecting bank; only cheque images and MICR data are transmitted electronically.
• Security: Protected by a PKI-based security architecture with dual access controls, user authentication, crypto box, and smart card interfaces.
• CTS-2010 Standards: Only compliant instruments are accepted, ensuring:
  • Use of specified paper quality, watermark, and invisible-ink logos.
  • Mandatory minimum-security features like void pantograph.
  • Standardised cheque design for uniform image-based processing.

Current vs. New System

• Current CTS: Clearing cycle takes up to two working days.
• New System (Continuous Clearing):
  • Cheques will be cleared within hours of submission.
  • Settlement will occur on realisation basis rather than at fixed batch intervals.

Benefits

• Faster Settlement: Realisation of cheque proceeds on the same day.
• Efficiency Gains: Reduced bottlenecks and delays in processing.
• Cost Savings: Eliminates costs linked to physical cheque movement.
• Security & Reliability: Enhanced authentication safeguards against fraud.
• Better Data Management: Easy storage and retrieval of digital records via a centralised archival system.
• Customer Convenience: Shorter clearing cycles improve banking efficiency for individuals and businesses.