Cheque Truncation Solution is a big milestone in the Indian banking industry. It enables cheque clearing on the same day, reducing floating time available for funds. The technology, being implemented from February 1 in the National Capital Region, enables banks to send images instead of paper cheques for clearing and settlement. The US-based NCR Corp was mandated by the Reserve Bank of India to prepare the truncation project for the capital region.
In an interview to Prashant K Sahu, South Asia General Manager Navroze Dastur asserts that cheque truncation will benefit both customers and banks, and help reduce frauds.
What is cheque truncation all about?
Instead of manually moving the cheque from one bank to another for payment, we would now use images. This will bring down the time required for processing.
Earlier, it would take two to three days. Cheques would now be cleared on the same day or the next day, thereby bringing efficiency into the entire banking system.
When did cheque truncation system start in the national capital region?
NCR Corp delivered the project to RBI recently after running the pilot for 3-4 months. The truncation system has gone live officially in the National Capital Region from February 1. The RBI has started with 10 banks and will be introducing 10 more banks every week.
By March-April, most banks would be on board and you will have parallel processing where paper cheque clearance and the truncation system would operate at the same time. But there will be a cut-off date for banks to move to the truncation platform.
NCR has implemented the technology in 10 banks, including ICCI Bank, Punjab National Bank, State Bank of India and Standard Chartered. They are processing their cheques through the system now.
What are the benefits available to banks, who would lose the floating time?
Yes, the move will reduce the floating time available to banks. But, from the banks' prospective, it will bring efficiency to their system. You can reduce frauds, though not eliminate them completely, with the help of truncation. It will also reduce the work time and manpower required at a service branch or a branch manning these activities through human interface. Automation will bring down the operating costs.
When will this system be implemented in other places?
The Reserve Bank of India will look at other cities and inter-cities. That is where the immediate benefit to the end customer is. The central bank is looking to reduce inter-city clearing, which takes about 15 days. It will evaluate success of the project in the capital region and on that basis, the system will be expanded.
How significant is the truncation system for India?
India is doing something very unique because it has a very large cheque volume. It processes about 1.2 billion instruments annually. The National Capital Region alone processes 6,00,000 cheques in a day. Countries such as Singapore have 4,00,000 instruments daily.
What is the potential of cheque truncation?
Large corporates and government agencies, which transact in a large number of cheques, could have tie-ups with their banks. Instead of sending the physical cheques, they can send them scan images to the branch concerned, which would then forward it to RBI for settlement.
The truncation can also be done at ATMs. You could send the image of the cheque by inserting it in the machine. The captured image will be send to the service branch for settlement and clearing. Customers would get a receipt.
What are other features of truncation?
Banks can do a huge amount of analyis using the cheque images. The customer's payment pattern would become known to the banks, who can then undertake cross selling, should they want.
The banks can prepare profile and thereby add value to the consumer.
