FREQUENTLY ASKED QUESTIONS

ON

CHEQUE TRUNCATION PROJECT-

CHENNAI
1. What is Cheque Truncation?

Cheque Truncation is the process of stopping the physical movement of cheques. As per the amended
Negotiable Instruments Act 1881, in cheque truncation, the movement of the physical instrument is
stopped and replaced by electronic images and associated MICR line of the cheque.

2. Why Cheque Truncation in India?

Cheques remain a popular form of payments in India even with the increased availability of alternate
payment channels. RBI continues to classify paper clearings as a System-Wide Important Payment
System (SWIPS) due to the high volumes of transactions. RBI successfully implemented Pilot Project for
Cheque Truncation System (CTS) in the National Capital Region. Since 1st July, 2009, CTS has replaced the
MICR Clearing in the New Delhi Bankers’ Clearing House. Around 12% of cheques in the country are
now processed in CTS environment (Source: RBI Annual Report, 2009-10).

3. What is NPCI’s role in CTS Chennai?

RBI has mandated NPCI to operationalise CTS in Chennai. NPCI will act as a Cheque Processing Centre
(CPC) and will process electronic cheques and images received from member banks.

4. What is RBI’s role in CTS Chennai?

RBI will manage the Chennai Bankers’ Clearing House (CBCH), carry out settlement of clearing
transactions that NPCI processes and look into all policy related matters.

5. What is Speed Clearing?

Speed Clearing is an arrangement to clear intercity non-at par items.

6. What is Grid Clearing?

Grid Clearing is an arrangement that allows banks to present/receive cheques from/to multiple cities in
a Single Clearing House through a service branch at one city.

7. Who can participate in the Cheque truncation system at Chennai?

The eligibility criteria for banks to participate in CTS at Chennai are similar to those in the National
Capital Region. There can be four types of participants viz.

i. Member banks of the CBCH

ii. Sub Member banks who will participate through members
iii. Indirect members who can participate for submission of data and images through a Member bank
but will maintain a separate settlement account

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iv. Banks not present in CBCH but having presence in other cities when Grid is introduced (to be finalised
in consultation with RBI). They can participate through sub membership or indirect membership route.

8. Is there any mandate on the point of truncation in CTS Chennai?

In CTS Chennai, presenting banks have the choice of deciding the point of truncation within their set-up.
As was the case in the National Capital Region, banks can choose the model best suited to them based
on considerations of security, efficiency, scale & nature of operations, technology readiness, geography
etc. Presenting banks can choose between centralised, distributed and hybrid. Images and MICR data
alone are exchanged between the banks and the CPC.

9. Is there any change in the responsibility of the presenting bank?

As the payment processing is done on the basis of images, the onus of due diligence shifts to the
Presenting Bank, as provided under explanation II to Section 131 of Negotiable Instruments Act. The
member banks have to enforce KYC (Know Your Customer) norms in letter and spirit. The banks should
observe all precautions which a prudent banker does under normal circumstances, e.g., to check the
apparent tenor of the instrument, physical feel of the instrument, any tampering visible to the naked
eye with reasonable care, etc. For enhanced attention, based on exceptions, the banks may employ
suitable risk management techniques like scrutiny of high value transactions, limit based checking by
officials, new accounts alerts, etc. The presenting bank takes full responsibility for collecting on behalf of
the intended payee and exercises due diligence as per the conditions laid down in the amended
Negotiable Instruments Act.
RBI has also issued guidelines for Standardisation and enhancement of security Features in cheque
forms. The guidelines outlines mandatory security features which can be leveraged by presenting banks
while scrutinising cheques of drawee banks in CTS. These guidelines are called CTS-2010 standard.

10. What infrastructure does a bank require to participate in CTS Chennai?

The infrastructure required depends on the type of member a bank is in the CBCH, model of truncation a
bank chooses and the inward & outward cheque volumes. The details are available in the Clearing House
Interface Specifications document shared with member banks.

11. Are there any image specifications for CTS in Chennai?

The image specifications are the same as published by RBI. There are three images as per the following
standards

Image Type Minimum DPI Format Compression

1 Front Gray Scale 100 DPI JFIF JPEG

2 Front Black & White 200 DPI TIFF CCITT G4
3 Reverse Black & White 200 DPI TIFF CCITT G4
The image quality of the Gray Scale image shall be 8 bits/pixel (256 levels).

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12. How is Image quality ensured in CTS?

Image Quality Assurance (IQA) standards govern the quality of images fit for presentment. These
standards are part of the capture solution that banks are required to procure for participation. The
Clearing House Interface (CHI) software (Gateway software connecting the service branch of the
presenting/drawee bank to the CPC) performs the second level of validation.

The CTS-2010 Standards require banks to print cheques in light pastel colours and to keep the
background clutter free. This will further improve the quality of images.

13. Will there be any change in the process for the customers?

There will be no change in the clearing process for the customers for outward. However, cheque returns
received by presenting banks are based only on electronic data sent by the drawee bank. The presenting
bank prints the return memo for the customer.

14. What is Paper to Follow (P2F) and why is it required?

Paper to Follow is an operational convenience in CTS wherein the drawee bank can request for the
physical instrument in case of any doubt or suspicion about the nature of instrument. The drawee bank
can request presenting bank for physical instrument, in case, the image it has received for processing is
not clear.

For Government cheques, Paper to follow is mandatory, since Government Departments continue to
receive paid instruments.

The presenting bank can send physical instrument to the drawee bank if, ab initio, it is identified that the
image has failed IQA validation.

15. How would customer benefit from cheque truncation?

Bank customers benefit in the following ways, if their bank participates in CTS

a) Faster realization and Credit;

b) Extended presentment Window
c) Improved reconciliation services for Corporate Customers and Government Departments
d) Reduction in Geographical dependence
e) Reduced operational risk due to inbuilt security in the workflow
f) Faster Customer Services- reduced TATs on Service Requests, queries and MIS

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You can reach us at:
National Payments Corporation of India
C-9, 2nd Floor, Reserve Bank of India
Bandra Kurla Complex, Bandra (East),
Mumbai – 400051
Phone: 022-26573150
Fax: 022-26571001

You can email us at:

cts@npci.org.in

www.npci.org.in