News: The Reserve Bank of India (RBI) has decided on the transition of the Cheque Truncation System (CTS) from the current approach of batch processing to continuous clearing with settlement on realisation in two phases.
About Cheque Truncation System (CTS)
- The CTS is an online image-based cheque clearing system introduced by the Reserve Bank of India (RBI).
- The cheque images and Magnetic Ink Character Recognition (MICR) data are captured at the collecting bank branch and transmitted electronically.
- So, it stops the physical movement of cheques.
- Advantages: This system speeds up cheque processing, reduces the risk of fraud, and improves banking efficiency across India.
- Current cheque clearing process
- At present, the CTS processes cheques with a clearing cycle of up to two working days.
- Banks collect and scan cheques before sending them for processing in designated batches, resulting in a T+1 day clearance period in most cases.
- New continuous clearing mechanism
- Under the new system, banks will scan, present and process cheques on a continuous basis during business hours.
- The clearing cycle will be reduced to a few hours, with cheques presented between 10:00 AM and 4:00 PM being processed in real time within the presentation window.
- For each cheque presented, the drawee bank will provide either a positive confirmation for honoured cheques or a negative confirmation for dishonoured ones.
- Implementation in two phases: RBI has announced a phased rollout of the system:
- Phase 1 (October 4, 2025 to January 2, 2026): Drawee banks must confirm cheques presented on them by the end of the confirmation session at 7:00 PM. Cheques without confirmation will be deemed approved for settlement.
- Phase 2 (From January 3, 2026): The item expiry time will change to T+3 clear hours. For example, cheques presented at 10:00 AM must be confirmed b
- Post-settlement payment release
- Once the settlement is complete, the clearing house will share confirmation results with the presenting bank.
- The presenting bank must release funds to customers immediately, and no later than one hour after settlement, subject to standard safeguards.
- Objective of the new system: The continuous clearing initiative is aimed at:
- Enhancing customer convenience
- Reducing settlement risks for banks and participants
- Improving operational efficiency across the banking system
