What is Cheque Truncation System (CTS)?

About Cheque Truncation System (CTS):

• What is Cheque Truncation? Truncation is the process of stopping the flow of the physical cheque issued by a drawer at some point by the presenting bank en-route to the paying bank branch. 
• What is CTS? It is an online image-based cheque clearing system where cheque images and Magnetic Ink Character Recognition (MICR) data are captured at the collecting bank branch and transmitted electronically, eliminating the actual cheque movement.
• Security: CTS is protected by a comprehensive PKI-based security architecture which incorporates basic security and authentication controls such as dual access control, user ID, and passwords with crypto box and smart card interfaces.
• Only CTS-2010 standards compliant instruments can be presented for clearing through CTS.
  • CTS-2010 standards contain certain benchmarks towards achieving standardization of cheques issued by banks across the country. 
  • 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.
  • The minimum-security features and standardisation help presenting banks while scrutinising / recognising cheques of drawee banks in an image-based processing scenario.
• Benefits.
  • Realisation of proceeds of cheque possible within the same day.
  • Data storage and retrieval becomes easy.
  • Minimizes risks and introduces a secured cheque clearing system.
  • Will result in cost savings due to lower cost in the physical movement of cheques.
  • Minimizing bottlenecks and delays between presentation and realization time.
  • Provides shorter clearing cycles and a centralized image archival system.
• CTS currently processes chequeswith a clearing cycle ofup to two working days. Once the newly announced measures by RBI on Continuous Clearing of Cheques under CTS are implemented, cheques would be cleared within hours of submission instead of two days.

Q1: What is Magnetic Ink Character Recognition (MICR)?

MICR refers to the small digital characters at the bottom of a check or a financial document. The MICR line is a set of digital numbers that represent the bank routing number, account number, and check number.The MICR digital numbers are sensitive to the magnetic field and are printed using technology with a special ink recognition line to allow the readability of characters. The printed information can only be read by specific computers.

Source: RBI announces Continuous Clearing of Cheques under CTS