Page 240 - DCOM208_BANKING_THEORY_AND_PRACTICE

Unit 14: Core Banking Solution

Advantages of E-cheques Notes

1. Since they are similar to traditional cheques, there is no need for customer education
2. They use conventional encryption than Public and private keys, electronic cheques are
much faster.

Disadvantages and Legal Issues of E-Cash

1. E-Cash cannot be broken into smaller denominations. Accessing Database of spent notes
is very time consuming.
2. Maintaining a database of spent notes is very expensive.
3. Currency fluctuation is another issue related to e-Cash.

Self Assessment

State whether the following statements are true or false:

16. E-cheques are well-suited for clearing macro payments.
17. E-cash can be broken into smaller denominations.

14.9 Cheque Truncation

Under the paper-cheque based clearing, the SBI bank will send the paper-cheque to the clearing
house and get the money and then transfer it to the account. This is time consuming because SBI
(or any bank) would need to physically move the cheques to a clearing house.

So RBI came up with a new idea known as ‘Cheque Truncation System (CTS)’.
In this Cheque Truncation System (CTS), SBI branch will not send the paper-cheque to the
clearing house, but rather, it’d merely scan the cheque, and electronically send the image +
MICR data, to the clearing house.
From the clearing house, the data would go to the paying bank; they will inspect the MICR data,
signature on the scanned image and release the money to SBI.
This process is faster and safer than the conventional paper-cheque clearing method.

Cheque Truncation System (CTS)

CTS stands for Cheque Truncation System and essentially means that instead of sending the
cheque in physical form, an electronic image of the cheque is sent to the drawee branch for
payment through the clearing house, thereby eliminating the cumbersome physical presentation
of the cheque to the paying bank, thus saving the time and costs involved in traditional process.

CTS 2010 is the recent standard prescribed by the RBI for cheques issued by all banks in the
country. This was introduced as a pilot project in the National Capital Region in 2008 and in
Chennai from September 2011. It is suggested that the cheque clearing would be centralized into
four grids, in four centres, North, South, East and West, and all the existing clearing houses
across the country will be linked to these CTS grids in course of time.
The RBI has confirmed that with amendments to Sections 6 and 1(4) and with the addition of
Section 81A to the Negotiable Instruments Act, 1881, the truncation of cheques has since been
legalized.

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