Truncation is the process of stopping the flow of a physical cheque from the bank where the cheque is issued to the bank
where the money needs to be withdrawn. Some basic information about Cheque Truncation System (CTS):-
- Under CTS, in stead of sending a physical cheque from the bank where it is issued, an electronic image of the cheque is sent for cheque clearance.
- Cheque truncation obviates the need to move the cheque physically across branches.
- Along the cheque image, banks also transmit details like data on the Magnetic Ink Character Recognition (MICR) band, date of presentation and details of the bank where the account-holder has deposited the cheque.
- The electronic movement of images of cheques speeds up the process of settlement and facilitates reduction in the clearing cycles as well. For the customers, there is no fear of loss of instruments in transit.
- This process eliminates the cost of movement of physical cheques, reduces the scope of clearing-related frauds and removes reconciliation and logistics-related problems.
- The bank where the customers deposit the cheque captures the data and images of the cheque using the capture system. It comprises of a scanner, core banking or other applications. The bank sends the data and the captured images signed and encrypted to the Central Processing location for onward transmission to the paying bank.
- The bank where customers deposit the cheque and also the bank where the cheque gets en-cashed are provided with a gateway called Clearing House Interface (CHI).
- The CHI enables them to connect and transmit data and images in a secure manner to the clearing house. It, in turn, then processes the data, arrives at the settlement figure and routes the images to the bank where money is withdrawn.
- The entire essence of technology lies in the use of the cheque images instead of physical cheques for payment.
- If you want to use this system, always use dark colored ink for writing your cheques and avoid any corrections in it.
- Do not make any corrections / changes on the cheques. For changes in payee's name, amount in figures and words, use fresh cheques as over-written / corrected cheques will be dishonoured by banks.