CHEQUE TRUNCATION

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CHEQUE TRUNCATION Business Opportunities
K.S. Bajwa, General Manager IT Punjab
National Bank
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Agenda

• Working group on Cheque Truncation and E -
  cheques
• Cheque Truncation Concept, Benefits, Point of
  Truncation
• Business Process Re-engineering
• Legal Issues involved
• Image Service Bureaus Business benefits.

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• Working Group on Cheque Truncation and E-cheques
• Physical cheque will be truncated with in the
  Presenting Bank
• Point of truncation will be decided by each
  individual member Bank
• Settlement will be generated on the basis of
  current MICR code line data
• Contd.

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Working Group on Cheque Truncation and E-Cheques

• Grey scale Technology will be deployed for
  imaging
• Images will be preserved for 8 years
• A Centralised agency per clearing location will
  act as an image warehouse for the Banks
• Public key infrastructure will be deployed to
  protect image and data flow over the Network

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• Cheque Truncation System - Concept
• Movement of the physical instrument is curtailed
• Image of the payment instrument is captured along
  with MICR data simultaneously
• Clearing Process completed based on Electronic
  data and image of the Cheques

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Benefits of the CTS

• Facilitate Banks to increase productivity and
  avail all the benefits of smarter technology of
  Electronic Cheque Presentment
• Better Operational efficiency
• Faster clearing cycle of payment instruments
• Cost saving in terms of storage and transport
  cost
• Optimal Customer satisfaction

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Business Opportunities - Banks

• Improved handling of post-dated cheques deposited
  by the customer, as the images can be scanned and
  stored and the system can automatically process
  the scanned images on the due date.
• Improved business intelligence systems can be put
  in place.

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Business Opportunities - Banks

• Introduction of new payment system products like
  e-cheques
• Better funds management
• Reduction in Transaction cost
• Better management of space and manpower
• Improved regulatory compliance.
• Improved Management Information Systems which
  will facilitate better decision making.

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Business Opportunities - Customer

• Faster realisation of Funds
• Better funds management
• Can avoid visit to the Branch as more outlets
  will be available for depositing cheques for
  clearing, at convenient locations.

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Business Opportunities -Vendors

• Upgrade of Technology opens up new business
  opportunities for vendors and solution providers.
• Can improve the Brand image of their products by
  providing improved functionalities for image
  capture, storage and retrieval
• Scope for improvement in processing capabilities
  , especially scanners and servers

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Point of Truncation

• Originating Branch
• ATM / Customer Location
• An identified Branch for a Cluster of Branches
• Service Bureau
• Service Branch of Originating Bank

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Factors to decide point of Truncation

• Infrastructure required
• Capital Cost for set up
• Recurring Costs
• Distance of the Originating branches from the
  point of truncation
• Technology used
• Volume of Cheques / images that will be processed
• Facilities available for storing the cheques
  images and their retrival

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Infrastructure Required- Point of Truncation

• PC with printer
• Scanner
• Network
• The configuration of scanner will depend on the
  volume of Cheques ( Documents per minute) -
  Approximate capacity 30 documents per minute
  (dpm)

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Truncation

• Capacity of scanner - Documents per minute
• Storage of Images ( Size of 3 prescribed images
  along with Digital Signature 75 KB )
• Front Gray Scale, Front Black White and
  Reverse Black and White

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Business Process Reengineering

• System and Procedures are to be re-looked to
  enable the Banks to work in electronic cheque
  processing environment
• Necessary guidelines to be issued to the Branches
  to enable them to pass the cheque based on images
  instead of physical cheques
• Process of return of cheques and its intimation
  is to be devised.
• Responsibility of genuineness of the image of the
  cheque is to be fixed since the drawee Bank will
  receive only the image of the cheque and not the
  physical cheque

Contd..
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Business Process Reengineering

• As per amended NI Act, 1881 the Presenting Bank
  will ensure Prima facie security of various
  mandatory fields of the cheque like date,
  availability of signature and chemical/material
  alteration
• Storage of physical cheque As per amended NI
  Act, drawee Bank can requisite for physical
  cheques in case of need.
• System will require storage of cheque as per
  Banking Companies preservation of Records Rules,
  1985. Point of storage of physical cheques is to
  be decided

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Legal Issues involved

• Amendments made in Negotiable Instrument Act,
  Information Technology Act
• Onus of verifying the Genuineness of the Cheque
  will shift to the stage at which it is presented
  
• KYC norms are to be meticulously complied by the
  Banks, as circulated by RBI

Contd ..
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Legal Issues involved

• Drawee Bank will continue to verify the signature
  and availability of funds
• Drawee Bank will have the right to seek further
  information on the veracity/ genuineness of the
  cheque
• Drawee Bank can also seek the physical instrument
  for verification

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Why Image Bureaus

• Smaller banks will not have sufficient volume of
  cheques to justify capital investment
• Sufficient infrastructure may not be available in
  the branch or service centre
• Operational costs for maintaining the system may
  be relatively high if sufficient capacity
  utilisation is not there.

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Image Service Bureaus

• Provide image capture, storage and retrieval
  facilities to a group of Banks for a fee.
• High end systems are set up for faster image
  capture, transmission, storage and retrieval .
• Adequate infrastructure put in place to manage
  the Bureau.

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Business Benefits for set up of Image Service
Bureaus

• Source of Revenue
• Economy of Scale
• Improved Technology can be used as High end
  systems can be put in place.

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Thank you