Despite to rapid acceptance of online banking and online payment transfers by Indian banking customers, cheques based payments are still a significant mode of payments in India. Statistics published by RBI mentions that in year 2006-07, more than a billion cheques were processed in India. You may be aware of theThe Magnetic Ink Character Recognition (MICR) code printed in black at the bottom of your cheques. These were introduced in mid eighties and has greatly added to the efficiency and reduction of time taken to process cheque based payments. I believe the next round of efficiency after the success of MICR would be CTS or Cheque Truncating System.
What is Cheque Truncating System (CTS) ?
Currently the cheques are being physically moved from one location to another as the cheques are required to be presented physically to the drawee bank. For example, if A drew a cheque of Rs. 10K on ICICI Bank and gave it to B. B deposits the cheque in his HDFC Bank account. Here, A is a drawer, B is a payee, ICICI Bank is a drawee bank, HDFC Bank is a payee bank. The cheque would have to reach from HDFC Bank (payee bank) to ICICI Bank (drawee bank) physically so that ICICI bank can do all checks such as signature, authenticity of the cheque, etc. before releasing the payment. You can perhaps appreciate that this would add to the time required in processing the cheque owing to physical transportion of cheques and a series of intermediaries involved in the process. The rationale behind this process was – Negotiable Instrument Act (which governs the cheques) required physical instrument to be sent to the drawee branch for release of payment. The Act has now been amended to allow for digital movement of cheques and hence forming a basis of CTS.
CTS truncates the physical movement of cheque. The cheques can now be scanned by the payee bank and sent digitally to the drawee bank for release of payment. This makes the process efficient as well as reduces the payment time / cost involved in processing. However, one of the basic challenges faced in implementing CTS across the country is – lack of standardisation of cheques which prevents digital movement of the cheques. Cheques are of varied sizes, designs, having fields located in different locations making it difficult to scan the cheques and allowing for a standardised system based recognition of cheque details (via Optical Character Reader technology).
The article from here after would discuss upon what changes have hence been introduced by Reserve Bank of India to standardise the cheque books, make them more secure and compliant with CTS technology / process.
Impact on Retail Customers
Any changes being made to a common financial instrument is bound to have significant impact upon the population of clients of retail banks. A couple of impacts are :
- Existing stock of Cheques – this is perhaps an administrative and logistics issue where customers having existing supply of cheques which are not CTS compliance would have to be issued with new CTS compliant cheque books. Obviously it would be a painful and costly process for the banks and perhaps a hassle for customers who would have to replace their old issued cheques with new ones.
- PDCs or Post Dated Cheques – This will be a biggest administrative hit for customers who have given PDCs for the payment of their loan EMIs or SIP based investment transactions. Such customers would have to revisit their respective banks to replace non compliant cheques with new cheques.
- NRIs – The issue which NRIs mostly face is documents not reaching them / getting lost in post. At times one reason is that their correspondence address is of a location where they don’t reside and hence the associated hassle of first updating their address and then getting their updated cheque book. I won’t be surprised that many such chequebooks may inadvertently be posted to an incorrect address owing to an outdated address in bank’s records.
- Faster & Secure Clearing – If the above 3 were hassles, the advantages are perhaps worth the pain. Currently clearing of cheques takes minimum 3 working days. With CTS, this may be reduced to 1-2 day. It would add to security of payments by having strict guidelines on cheque stationery and hence reducing frauds. Errors may be reduced whereby the processing of cheques would be automated and digitised.
Changes to the Cheques
Proposed layout of a sample CTS compliant cheque is pasted below (sourced from RBI’s website)
Some of the new features introduced as a part of the CTS are :
1. Paper Quality – paper will be image friendly and will have security features such as chemical sensitivity to acids, alkalis, bleaches and solvents giving a visible result after a fraudulent modification being made to the paper.
2. No UV Glow – The new cheques will not glow under a Ultra Violet light. This would ensure a uniform look and feel of cheques across different banks.
3. Watermark – a new standardised watermark ‘CTS-INDIA’ will be present which would be visible by holding a cheque against a light source. The objective is to make it difficult for fraudsters to print / photocopy a cheque on a normal paper. There are specific requirements for shape and size of this watermark. A sample of the illustrative watermarks are
4. VOID pantograph – This is a technology used to detect counterfeit documents / cheques once a person has made an unauthorised copy of a protected document (cheque). In the current era of colour photocopies, it is very easy to take a print of a cheque which resembles exactly like the original cheque. VOID pantograph uses a technology where the background design of the cheque has a pattern of repeating words like “void” or “copy”. When such a document / cheque is photocopied, the words “void” or “copy” (as the case may be) would appear multiple times on the reproduced photocopy / print, hence making it apparent that the copy is not original preventing the release of funds on an unauthorised cheque. RBI has made it mandatory for all new cheques to have such a feature.
5. Bank’s Logo in UV : The logo will be printed with invisible ink which shall be visible under a ultra violet lamp to establish genuineness of a cheque.
6. Field Placements – Location of important fields such as Payee, Amount, Date shall be standardised on the cheques to enable the OCR reader machines perform automatic payment processing.
7. Clutter free Background : In order to improve the clarity and quality of scanned images, the background of the cheque shall be made clutter free.
8. Account numbers pre filled : Account numbers for cheques shall be pre printed and would be a must for current account holder / corporate clients;
Banks may also additionally have other security features such as additional watermarks, embedded fluorescent fibres, patterns, etc. which may enhance the security features of cheques. However such features should be compatible with the minimum required mandatory features enumerated above.
Full details of the requirement can be read at RBI’s Website.
RBI has asked banks to adhere to the following timelines (in circular DPSS.CO.CHD.No. 399/04.07.05/2012-13) in order to ensure timely migration to the CTS compliant cheque formats :
- Issue only multi-city/payable at par CTS compliant cheque books by September 30, 2012.
- Withdraw non CTS compliant cheques from circulation before December 31, 2012 by creating awareness among customers. This can be via through multiple mechanisms like emails, SMS, letters, notification on the web-site etc.
- Arrangement to replace non CTS Post-dated EMI cheques with CTS compliant cheques by December 31, 2012. Considering this deadline as challenging, RBI has subsequently extended it to 31 March 2013.
Perhaps it would be a good idea to check your current cheque book with a sample cheque in the article above. If you find that your cheque book is not CTS compliant, then I would strongly recommend to do the following :
- Check the correspondence address which you have in your bank account. It may be possible that your correspodence address is outdated and hence you may have to get that rectified before applying for the new chequebook.
- Contact your bank to confirm if they have dispatched the replacement cheque book. Banks are automatically dispatching new chequebooks to the account holders.
Irespective of the administrative hassle, I would strongly suggest to get the replacement chequebook in your pocket as you would not want your cheques being rejected or you not being able to make the payments owing a non-standarised cheque leaf. Whether the banks would enforce the requirements of CTS to the letter in the law, I am not sure. However, it is better to be prepared when you have time in hand than to suffer later on !