Cheque Truncation Project

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CHEQUE TRUNCATION SYSTEM(CTS) PROJECT By REEMA DAWRA(07/2010) RAHUL YADAV(01/2010) KHEM RAJ(19/2010) ASHWINI DURGE(18/2010) SHYAM SHARMA(14/2010)

Transcript of Cheque Truncation Project

Page 1: Cheque Truncation Project

CHEQUE TRUNCATION SYSTEM(CTS) PROJECT

By

REEMA DAWRA(07/2010)

RAHUL YADAV(01/2010)

KHEM RAJ(19/2010)

ASHWINI DURGE(18/2010)

SHYAM SHARMA(14/2010)

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INDEXI

ntroduction

A

mendment In ACTS

C

omparison of Current System and CT system

R

egulatory Perspectives

C

TS Process Flow & Image Standards

W

orking Group on CT and their recommendations

C

TS – Benefits

R

ole of Banks & RBI

P

ilot Project at New Delhi(2006) ; Chennai (2008) and Mumbai(2011)

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INTRODUCTION R

eserve Bank of India is undertaking a new retail payment systems initiative for

the introduction of an Image based Cheque Truncation System in the country,

which is aimed at improving the current process of realisation of cheques which

have to be physically presented to the drawee branch for payment.

C

heque Truncation is settlement of clearing transactions on the basis of images

and electronic data without the physical movement of the instruments. The

Clearing Cheque is truncated at the Presenting bank itself.

C

TS allow Institute to Truncate cheque at “point of capture” to the capabilities of

“Paying Bank” electronically and Return Cheque Electronically. CTS require

Electronic Image along with MICR field, date of presentation, presenting bank.

No movement of cheque is required

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HISTORYR

equest For Information sought from the various vendors in

December

2003.

R

equest for Proposal sought from Vendors in June 2004.

C

ircular on Cheque Truncation to Banks issued on July 1, 2004.

T

echnical Bids of the Vendors opened on July 21, 2004. Technical

evaluation

over.

C

ommercial Bids Opened on April 1, 2005.

R

eference Site Visit over in May 2005.

N

egotiations on with the L1 Vendor.

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CONT…C

ommittee formed by CGA to look into the various rules and

procedures

to be amended for Govt. participation.

Internal Committee formed in RBI for similar purposes.

Image Standards already decided.

Standardized Image friendly cheque format designed.

Procedural guidelines drafting group formed. First draft already ready.

Circular issued on September 1, 2005 outlining the role of the

participating banks.

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AMENDMENTSC

TS introduced in Consonance with amendment in:

Negotiable Instruments Act 1881

IT Act 2000

Banker’s Book Evidence Act 1891

Cheque” -…it includes the electronic image of a truncated cheque and a

cheque in electronic form

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CURRENT CHECK CLEARING SYSTEM

PAYOR

Paying Institutions

Payee

DepositoryInstitution

Deposit Slip

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CHEQUE TRUNCATION – CONCEPTUAL DIAGRAM

PRESENTING BANK

PRESENTING BANK

DRAWEE BANK

DRAWEE BANK

Service Branch

(Bank Image ServiceBureau)

Common

Warehouse

ChequeProcessi

ngCenter

Service Branch(Drawee Bank)

Return Flow

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REGULATORY PERSPECTIVES

R

eduction of Operational Risk in Banking Operations

Clearing is a highly fraud prone operation

D

eveloping Standards

– Image

standards

– Cheque

standards,

Operating standards,

Defining roles and Responsibilities

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CONT…C

ertification :

– for

participation in CTS,

setting up Warehouse

L

egislation

Amendments to NI, IT and BBE Acts.

D

evelopmental Role

Major developments in Payment Systems Spearheaded by RBI.

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CTS PROCESS FLOW

PRESENTING BANK

CLEARING HOUSE

COMMON WAREHOUSE

PAYING BANK

Outward Cheques’ MICR & Image(1)

Inward Return Cheques’ MICR & Image(4)

Physical Cheques’ are archive

Outward Cheques’ MICR & Image(2)

Outward Return Cheques’ MICR (3)

Cheques’ MIRC data & Image are captured at the Presenting Bank

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CONT…

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IMAGE STANDARDS

B

lack and White : 200 dpi, 2bit (16 level), TIFF image with CCITT G4

Compression

G

rey Scale : 100 dpi, 8 bit (256 level), Jpeg image with Jpeg

compression

G

rey Scale Front and B/W front and back images used for processing.

M

ICR line will continue to be in E13 B font.

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FORWARD ORIGINAL IRD OF PERSONAL-SIZE CHEQUE, FRONT

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FORWARD ORIGINAL IRD OF PERSONAL-SIZE CHEQUE, BACK

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RECOMMENDATIONS

The physical cheque will be truncated within the

presenting bank.

Within the presenting bank the point of truncation could

be decided by each individual member bank providing for

Service Bureau models where banks can approach or set

up Service Bureaux for capturing images and MICR data.

Settlement will be generated on the basis of current MICR

code line data.

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CONT…

Electronic images will be used for payment processing.

Grey scale technology will be deployed for imaging.

Images will be preserved for eight years.

A Centralised Agency per clearing location will act as

an image warehouse for the banks. Group

recommended norms for agencies to provide the

service.

Public Key Infrastructure will be deployed to protect

images and data flow over the network

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BENEFITS OF CTS

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BENEFITS OF CHEQUE TRUNCATION

T

hree Dimensions of CT

-

Operationally Efficient ;Cost Effective & Customer Service

Benefits

C

learing and forwarding times will reduce

F

raud can be detected at early points and addressed more effectively

O

perational costs can be brought down dramatically along with cycle times

M

inimizing Float and hence the misuse of float funds and preventing scams

I

nter branch reconciliation will be smoother:

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RISKS IN CHEQUE TRUNCATION

If a drawee bank chooses to verify signatures on the images of cheques above a

cut-off amount only, then it runs the risk of paying some forged instruments.

Banks will have to take adequate measures to ensure that all necessary

safeguards are provided for – in consonance with legal requirements and banking

practice while making payments, especially for high value instruments

If the MICR data given by the bank is not that matching with the day’s image

the bank has sent for collection, it may lead to erroneous settlement and large

returns

The Warehousing Agency for images and physical storage of cheques might not

be able to produce the image or the physical cheque demanded by the bank. This

may lead to legal complications and assignment of liabilities

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BANKS & RBI ROLES

R

eengineer Internal Process

V

endor Selection And Integration of CHI with Bank’s Software

N

etwork All the Branches

P

oint Of Truncation – Internal Matter of Banks

R

BI provides CHI or Software & Integration has to be done by banks

I

mage and Data Standards would be open and inter-operable

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PILOT PROJECT R

eason for Pilot Project: Cheque volumes, Infrastructural requirements

and Other influencing factors for an all India based implementation .

I

n End March 2006 at NEW DELHI started CTS Pilot Project. Followed

by Pilot Project in Chennai(2008) and Mumbai(2011)

N

ew Delhi Clearing House has 82 direct bank members & 2500 bank

branches & Project unique as it is biggest single site

I

ncludes 3 aspects of CTS - POD; Settlement & Archive

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Pilot Cheque Truncation Project at National Capital RegionChecklist for the Banks

1 Deciding point/s of outward truncation within the bank September

2Assessing the networking infrastructure required for transmission of images & MICR data to the Clearing House and internal networks of the bank

September

3Deciding point/s of inward payment processing of images and MICR data

September

4

Deciding on the systems for storage of inward and outward images in an electronic form and their subsequent retrieval, retention period for the outward presentation and inward instruments online in an electronic form.

September

5Assessing the hardware & software requirement for outward & inward clearing, storage of outward/inward images/ data etc.

September

6Deciding on the re-engineering of the payment processing workflow; and training & reorientation of the staff concerned

September

7Finalising/ shortlising vendor/s for acquisition of necessary hardware/ software and for integration of CHI with the existing banking/ clearing applications of the bank

October

8 Finalisation of the Procedural Guidelines November

9Awareness Training Programme for all officers and staff members associated with clearing operations

December

10 Installation of Hardware and Software January

11 Commencement of Test Runs with dummy cheques First week of February, 2006

12 "Live Run" Last Week of March 2006

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HYBRID TRUNCATION MODEL

T

here are 3 Models: Peer to Peer; Clearing House & Hybrid Model

A

s the banks in New Delhi are at different stages of Technology the model

accommodates all of them.

Fully Networked banks may come by networks.

Media submission also allowed.

Banks may use the services of Image Service Bureaus

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REFERENCES http://www.bis.org

http://www.thehindubusinessline.com

http://www.cisco.com/go/banking

http://www.rbi.org.in

http://www.federalreserve.gov

http://www.dnaindia.com/money/report_a-pan-india-cheque-

truncation-system-five-years-away_1336380

http://en.wikipedia.org/wiki/Cheque_truncation_system

http://www.rbi.org.in/scripts/NotificationUser.aspx?

Mode=0&Id=1756

http://www.iba.org.in/events/Cheque%20Truncation_Kaza

%20Sudhakar_RBI.PDF

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