The Reserve Bank of India’s (RBI) monetary policy committee (MPC) meeting on Thursday, August 8, 2024, announced continuous clearance of cheques in the Cheque Truncation System, or CTS, instead of batch clearing to expedite the clearing process for the ease of banking consumers. After the MPC’s three-day meeting, RBI Governor Shaktikanta Das said cheque clearance via CTS currently happens in batches, which take up to two working days.

MPC has now proposed introducing an “on-realisation-settlement” process in CTS for continuous cheque clearance. This means that cheques will be cleared within a few hours of initiating the process. This change will immensely help seniors who often rely on cheques to withdraw or transfer money.

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What Is Cheque Truncation System (CTS)?

CTS is a cheque-clearing process employed by banks. Under this system, cheques issued by a person (drawer) are kept with the presenting bank, while an electronic image of the cheque is sent to the paying bank’s branch for clearing. In addition to the image, the presenting bank sends the relevant information, such as the Magnetic Ink Character Recognition (MICR) number, presentation date, name of the presenting bank, etc., to the paying bank to process the payment.

CTS removes the need for sending physical cheques from one bank branch to another, saving time and money. Before CTS in 2008, banks sent the cheques physically to the paying branch for clearing. Non-CTS cheques were cleared separately until 2018 when this practice was discontinued.

Under CTS, cheque clearance or settlement time is reduced from T+2 (Transaction day + two days) to T+1. CTS made the process easier and faster while making data storage and retrieval easier.

Now, RBI has proposed the “on-realisation-settlement” process to make it faster.

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What RBI MPC Has Said

According to the MPC statement, “CTS currently processes cheques with a clearing cycle of up to two working days. To improve the efficiency of cheque clearing, reduce settlement risk for participants, and enhance customer experience, it is proposed that CTS be transitioned from the current batch processing approach to a continuous clearing with ‘on-realisation-settlement’. Cheques will be scanned, presented, and passed in a few hours and continuously during business hours. The clearing cycle will reduce from the present T+1 days to a few hours.”

RBI is expected to issue a detailed guideline in this regard shortly.