Cheque clearing goes digital

A major advantage of CTS is that the time taken for the cheque to be cleared is reduced to almost nil —CDK Sai Narain, GM,Transaction Banking, Standard Chartered

We have implemented CTS for 19 banks, accounting for 75% of cheques issued in the National Capital Region —Navroze Dastur, GM-South Asia, NCR’s Payment Solutions

Instant coffee, instant nirvana, instant entertainment, instant information…time is the singlebiggest factor in this "instant" world we live in. So how could banking stay unaffected? After anytime money and Internet banking, we now have instant cheque clearance.

Until recently, it would take at least three days, going up to an average of 15 days, to clear a cheque. Then there were hassles like missing cheques or clearing related frauds. According to a public interest litigation filed by Delhi-based lawyer, Atul Nanda, last year, banks in India were "illegally" availing of thousands of crores of consumers' money as a free fund float. The complaint, which ran into more than 700 pages, set out that that in a year about 13,000 lakh cheques are transacted. On this amount, on a daily basis, banks earn about Rs 620 crore by delaying the credit of cheques deposited. On an average a bank enjoys five days float, which amounts to Rs 3,500 crore. This is money that customers would otherwise have earned by way of interest.

But things are poised to turn on its head with the successful implementation of the Cheque Truncation Solution (CTS) pilot project in the National Capital Region. Truncation is the process of stopping the flow of physical cheques. So under CTS when a customer deposits a cheque, a scanned image of the cheque is processed. Suppose you have an account in the New Friends Colony branch of Citibank in Delhi and you get a cheque from your friend, who banks with ICICI Bank, Fort, Mumbai. Under CTS, once you deposit the cheque in your branch, SBI will scan the cheque and send the digital image to RBI, which in turn will collect the money from ICICI Bank and send it to SBI and on to your account. This whole process, available 24x7, will take 24 hours or less. The physical cheque would be warehoused with the bank but you can ask for a copy of the image.

Says CDK Sai Narain, general manager, Transaction Banking and Strategic Initiatives, Standard Chartered Bank, "Once it is fully implemented, CTS will cut down the time taken for the cheque to be cleared to almost nil. So far, the facility of same-day clearance was limited only to high value cheques (minimum amount of Rs 1 lakh) and that too only through select branches of leading banks."

To appreciate the true power of CTS, it is important to understand how things have been working so far (see graphic). With the introduction of CTS, electronic processing will ultimately shorten the clearing cycles. Says an RBI official, "While customers are the obvious beneficiaries, such automation will reduce operating costs and increase efficiencies for the banks too." Not only will CTS minimise the processing costs, but it will also eliminate several logistical problems and curb the scope for clearing related frauds.

The project implemented by NCR Corp, one of the global leaders in payment solutions, was limited to 10 banks but since February 2008 has expanded to a total of 19 banks. These include ICICI Bank, HDFC Bank, Citibank, Standard Chartered Bank, Punjab National Bank, State Bank of India and all of its six associates. It's designed to handle 15 lakh cheques every day. As of now, banks can present local cheques and those from other states, but only of banks that have branches in the National Capital Region. Based on experience, the RBI will consider extending the CTS platform to other cities. A number of other banks are already approaching NCR Corp and rival technology solution providers such as AGS Infotech to join this bandwagon.

So what is the point of truncation selected by banks offering CTS? Says Navroze Dastur, general manager, South Asia, NCR payment Solutions, "Mostly banks have selected branches as points of truncation but they are also looking at ATMs or truncation at the corporate end." That means corporates with high volume of cheques can be given a scanner by the banks to truncate cheques at their end and send the image to the bank for onward clearing.

While CTS is a step in the right direction, we have a long way to go to match mature payment systems. Nanda, for one, questions the smoothness of the transition from a paper-based system to a digital one. "The thought is correct—we have to move towards better payment systems— but I'm not convinced that the implementation will happen quickly," he says. Given the varying degrees of receptiveness to technology by banks and customers alike, the countrywide adoption will take a while.