Page 103 - DMGT303_BANKING_AND_INSURANCE

Banking and Insurance

Notes Despite the reasons for the popularity, they are not without problems. The basic problems
associated with the cheques are:

Inherent manual handling process
High cost for banks
High courier/transportation costs between parties
It is here that the need for a Cheque Truncation mechanism arises. Cheque Truncation is a
system of cheque clearing and settlement between banks based on electronic data/images or
both, without physical exchange of instrument.
It may be defined as the replacement of the physical cheque flow with electronic information
within all four legs of the clearing cycle (Outward Clearing, Inward Clearing, Outward Returns
and Inward Returns).

Key benefits of Cheque Truncation
Efficient and streamlined processing of images

Elimination of transportation of physical cheque
Shorter clearing cycles
Extended cut off time for cheque submission
Real time clearing positions available to banks throughout the day

Economies of scale with centralized National Image Archive
Automated inward signature verification process

Fraud prevention measures
Kiting made difficult
Black listed accounts flagged
Built in anti money laundering features Specific Benefits to Customers of the Bank
The bank customers would get their cheques realised faster as T+0 local clearing and T+1 inter-
city clearing is possible in Cheque Truncation System (CTS). As straight through processing and
automated payment processing are enabled by CTS faster realisation is accompanied by a
reduction in costs for the customers and the banks. It is also possible for banks to offer innovative
products and services based on CTS. The banks have additional advantage of reduced reconciliation
and clearing frauds.

Self Assessment

State whether the following statements are true or false:
6. The ECS is further divided into two types - ECS (Credit) to make bulk payments to
individuals/vendors and ECS (Debit) to receive bulk utility payments from individuals.
7. The bank customers would not get their cheques realised as faster as T+0 local clearing and
T+1 inter-city clearing is possible in Cheque Truncation System (CTS).
8. The need for a Cheque Truncation mechanism arises. Cheque Truncation is a system of
cheque clearing and settlement between banks based on electronic data/images or both,
without physical exchange of instrument.

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