We all live in a world where we want eveyrthing instant be it Instant coffee, instant entertainment, instant information. Time is the single biggest 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.
Image based cheque clearing system or Cheque Truncation System (CTS) is a project undertaken by Central banks of many countries such as India (Reserve Bank of India – RBI), UAE (Central bank), Saudi Arabia (Saudi Arabia Monitoring Agency – SAMA) etc. for faster clearing of cheques. CTS promises to bring multiple benefits to customers by substantially reducing the time taken to clear the cheques as well as to the banks by enabling them to offer better customer services and increasing operational efficiency by cutting down on overheads in physical clearing. In addition, CTS also offers better reconciliation and fraud prevention. CTS uses cheque image, instead of the physical cheque itself, for clearing of the cheque.
Image-based clearing systems have great potential in India as implementing them can result in huge cost savings for banks. The expenses incurred in archiving, storing, and transporting documents can be drastically reduced. It has been estimated that the cost savings for a mid-sized public sector bank to be in the range of Rs 20-25 crores per year. The benefits of electronic cheque presentment will be seen both in the back-office and at the customer interface. It will streamline cheque handling and speed up the clearing process to give customers faster access to their money. While the actual cost of the solution depends upon the number of branches that decide to adopt this technology, the minimum cost for a bank is in the range of Rs 2.5 crore.
1.1 OBJECTIVE OF THE STUDY
1. To find out the need for Cheque Truncation System in Indian Banks.
2. To study the problems associated with manual handling of paper cheques.
3. To study the Key challenges in the Effective Implementation of CTS.
4. To find out the benefits of CTS.
5. To find out the risks associated with CTS.
1.2 IMPORTANCE OF THE STUDY
I am the greatest beneficiary of this study as it helped me to understand better the operations of Indian Banks. It enabled me to know how important it is to be updated with latest technology so as to survive the tough competition in Banking Industry. The thesis will also act as a source of reference for others who desire to do some research on banking industry. This thesis will also be helpful for other Indian banks, which have not yet adopted CTS.
2. LITERATURE REVIEW
2.1 MEANING OF CHEQUE:
A cheque (or check-USA) is a negotiable instrument, instructing a financial institution to pay a specific amount of a specific currency from a specified account held in the depositor’s name with that institution. Both the maker and payee may be natural persons or legal entities.
Cheques were introduced by the Bank of Hindustan, the first joint stock bank established in 1770.
In 1881, the Negotiable Instruments Act (NI Act) was enacted, formalizing the usage and characteristics of instruments like the cheque, the bill of exchange, and promissory note. The NI Act provided a legal framework for non-cash paper payment instruments in India.
2.2 THE OLD SYSTEM
The Cheque is currently the most visible and significant mode of payment in India. In view of the importance of cheque to the retail segment, the Reserve Bank of India introduced Magnetic Ink Character Recognition (MICR) technology. MICR technology enabled the banking system to handle the growth in the cheque volumes and to provide faster and efficient clearing services to customers and to do straight through processing using...