Positive Pay System CTS, Cheque Truncation System YouTube Lecture Handouts

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Positive Pay System: Add on to Cheque Truncation System (CTS): Banking - Implemented 1st Jan 2021

Positive Pay System CTS

Positive Pay System CTS
  • The concept of Positive Pay involves a process of reconfirming key details of large value cheques. Under this process, the issuer of the cheque submits electronically, through channels like SMS, mobile app, internet banking, ATM, etc. , certain minimum details of that cheque (like date, name of the beneficiary/payee, amount, etc.) to the drawee bank, details of which are cross checked with the presented cheque by CTS. Any discrepancy is flagged by CTS to the drawee bank and presenting bank, who would take Redressal measures.
  • National Payments Corporation of India (NPCI) shall develop the facility of Positive Pay in CTS and make it available to participant banks. Banks, in turn, shall enable it for all account holders issuing cheques for amounts of ₹ 50,000 and above. While availing of this facility is at the discretion of the account holder, banks may consider making it mandatory in case of cheques for amounts of ₹ 5,00, 000 and above.
  • Only those cheques, which are compliant with above instructions, will be accepted under dispute resolution mechanism at the CTS grids. Member banks may implement similar arrangements for cheques cleared/collected outside CTS as well.
  • Banks are advised to create adequate awareness among their customers on features of Positive Pay System through SMS alerts, display in branches, ATMs as well as through their web site and internet banking.
  • Positive Pay System shall be implemented from January 01,2021.

Cheque Truncation System (CTS)

Cheque Truncation System
  • From 1st April 13, Cheque Truncation System (CTS) would be implemented, whereby the flow of the physical movement of the cheque will be eliminated in the cheque clearing process. Instead, an electronic image of the cheque will be sent along with relevant information.
  • Cheque Truncation System (CTS) is a cheque clearing system undertaken by the Reserve Bank of India (RBI) for faster clearing of cheques.
  • Truncation is the process of stopping the flow of the physical cheque in its way of clearing.
  • In India, the RBI has made available inter-bank and customer payments online in near-real time in the form of RTGS and NEFT. However, cheques remain a prominent mode of payment in the country. Physical cheques still account for 75 % to 80 % of all transactions.
  • Therefore, the RBI has decided to focus on improving efficiency of the cheque clearing cycle. Thus, offering CTS is an alternative. CTS also reduces operational risks in banking operations as clearing is a highly fraud-prone operation
  • Since there is no physical movement of cheques, there is no fear of loss of cheque in transit. Usage of CTS cheques also means quicker clearance, shorter clearing cycle, and speedier credit of the amount to your account. Depending on whether the cheque is local or outstation, the cheque can be cleared on the same day or within 24 hours
    • Shorter clearing cycle
    • Superior verification and reconciliation process
    • No geographical restrictions as to jurisdiction
    • Operational efficiency for banks and customers alike
    • Reduction in operational risk and risks associated with paper clearing
  • In addition, to reiterate, scope for frauds are minimum under the CTS regime, which is good for banks
  • Certain benchmarks across the country have been prescribed like quality of paper, watermark, bank՚s logo in invisible ink, void pantograph, etc. , and standardization of field placements on cheques. This will achieve standardization of cheques issued by banks.

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