The Hindu Business Line : Cheque truncation system to begin from March 2006 — High service charge not desirable, RBI tells banks

Speaking at a seminar here on Friday on cheque truncation, jointly sponsored by the Indian Banks Association and IBM, the RBI Executive Director, Mr R.B. Barman, said CTS would be initially taken up as a pilot project in Delhi before being extended to the rest of the country.

This facility, he said ,would enable clearance of cheques on a T+0 basis. This implied that the customers' outstation cheques would be cleared on the same day it is deposited and the accounts settled.

Currently, clearing operations for outstation cheques take as much as four weeks.

The new system will eliminate the need for physically sending cheques. Instead, only an image is transmitted. Based on this image, the payment advice would be made and settlement done, he said.

Explaining the salient features of CTS, Mr Barman said all banks would be expected to migrate to this system at the earliest after its full introduction.

This is in view of the fact that CTS considerably mitigated operational risk. Operational risk is the third major risk identified by the Banking for International Settlements in its draft for implementation of the Basel II norms for capitalisation of banks. Introduction of the system mitigated frauds considerably since there is no physical movement of cheques.

Some of the legal impediments for introduction of CTS have already been removed. These include amendments to the Bankers Book Evidence Act, the Negotiable Instruments Act and the Information Technology Act.

Mr Barman said banks were at liberty to prepare their own configurations for inviting bids for the hardware and software for CTS. However, he cautioned banks on the charges that need to be levied on customers for offering the service.

"High service charges will be a retrograde step," he said.

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