New cheque clearance system to begin in Chennai by mid-2011

Rejection of cheques with over-writing or other corrections, currently limited to the national capital, will begin in Chennai by the middle of the year, but the pan-Indian implementation of this new cheque clearance system by RBI may take a few years more.

The new Cheque Truncation System, under which cheques are cleared through their digital image being passed through the banking system and without their physical presentation, will be implemented in Chennai in its second phase by Newgen Software.

The system was introduced in Delhi by the company in December 2010, marking the first phase of the new system, proposed by RBI earlier last year.

"We expect that second phase of CTS technology (under which over-writing on cheques would not be accepted) will be implemented by June-July," Newgen Software Managing Director Diwakar Nigam told PTI.

He further said that the second stage will cover Chennai and other southern regions followed by Mumbai and then rest of India. However, he said that it will take another four-five years to implement the scheme in the whole India.

The CTS technology in simple term means that no over-writing would be accepted on the cheques any longer. However, changes or corrections would be allowed on dates. For any changes in the cheque, a fresh cheque form needs to be issued.

The technology will minimise the scope of frauds and provide significant benefits for both banks and customers, Nigam added.

He further said, "CTS offers better reconciliation and fraud prevention functionalities. This move will help RBI to clear its offices from the heavy paper-load and digitise all the documents lying in its various offices."

The norms will be applicable only for cheques cleared under the image-based CTS, and will not apply to those cheques, which are cleared by clearing houses that use Magnetic Ink Character Recognition (MICR) or non-MICR system.

Also, the norms will not be mandatory for over the counter collection of funds or for direct collection of cheques outside the Clearance House Arrangement.