Cheque Truncation is a process in which the physical movement of a cheque issued by the drawer at the presenting bank is stopped before it reaches the paying bank branch. This system means instead of moving the physical form of cheque, now one bank can send the scanned image of the cheque in electronic form to another bank. This process of cheque truncation system can help to reduce the financial burden on banks and that money and resources can be applied to complete more useful tasks.
Cheque Truncation System (CTS) is an digital, scanned image-based cheque-clearing system which captures cheque images and Magnetic Ink Character Recognition (MICR) data at the collecting bank branch and then sends them electronically. It completely eliminates the need for physical movement of cheques.
Introduction
A cheque truncation system promotes the processing of a cheque electronically through the Magnetic Ink Character Reader (MICR) data and a scanned image. The physical cheque is not required.
Benefits of Cheque Truncation System (CTS)
- Speed of Realization: Cheque Truncation System (CTS) enables the realization of cheque proceeds on the same day which creates customer satisfaction and streamline the payment process, enhancing efficiency of banks.
- Data Management: Cheque Truncation System (CTS) helps to facilitate easy storage and retrieval of cheque data. It helps in better data management and use of collected information in an efficient manner.
- Risk Minimization: Cheque Truncation System (CTS) reduces risks as it introduces a secure cheque-clearing system.
- Cost Efficiency: Cheque Truncation System (CTS) is very cost efficient as it reduces costs associated with the physical movement of cheques.
- Processing Mechanism: Cheque Truncation System (CTS) minimizes the excessive delays between cheque presentation and realization and thus streamlines the process.
- Shorter Clearing Cycles: Cheque Truncation System (CTS) offers shorter clearing cycles as there is a centralized image archival system in it.
- Continuous Clearing: Cheque Truncation System (CTS) is trying to incorporate additional features so that it can clear cheques in a much shorter period of time.
About Reserve Bank of India (RBI)
The Reserve Bank of India (RBI) is the topmost body in the Indian financial system. It is the central authority for banking and is concerned with printing currency notes and framing monetary policy. The Reserve Bank of India was established on April 1, 1935, under the Reserve Bank of India Act, 1934. Its basic role is to regulate the issuance and supply of the currency of India i.e Indian Rupee (INR) apart from monitoring the working of the entire banking system in India. The most important task of RBI is dealing with ‘Kinds of Bills’ like Treasury Bills, Commercial Bills, etc. besides other negotiable instruments. Knowing these different types of bills is quite important, as they form the bedrock for the financial and monetary policies of the Reserve Bank of India.
FAQs
What is Cheque?
A cheque is a financial instrument that directs a bank to pay a specific sum of money to the bearer or to the person or entity named on the cheque.
What are different types of Cheques?
Bearer Cheque, Order Cheque, Crossed Cheque, Post Dated Cheque, Stale Cheque etc