The smart move in Indian banking - Cheque Truncation System

 History of Cheque

The spellings check, checque, and cheque were used interchangeably from the 17th century until the 20th century. However, since the 19th century, the spelling cheque (from the French word chèque) has become standard for the financial instrument in the Commonwealth and Ireland, whilecheck is used only for other meanings, thus distinguishing the two definitions in writing.

In American English, the usual spelling for both is check.

There have been suggestions that the word chek comes from ancient Pahlavi language which was used in the Achaemenid Empire in Persia.It may have spread from there to Arabic where saqq means a promise to pay a certain amount of money for delivered goods.

Traditionally, cheques have been the major non-cash payment instrument in India, towards payment and also used for official documentation. They are used as mutual agreement of payment and for easy remote transactions.

Indian Cheque

The Cheque was introduced in India by the Bank of Hindustan, the first joint stock bank established in 1770. In 1881, the Negotiable Instruments Act (NI Act) was enacted in India, formalising the usage and characteristics of instruments like the cheque the bill of exchange and promissory note. The NI Act provided a legal framework for non-cash paper payment instruments in India. In 1938, the Calcutta Clearing Banks' Association, which was the largest bankers' association at that time, adopted clearing house.

At the current outset in India, the clearing system is local and confined to a defined jurisdiction covering all the banks and branches situated in the area under a particular zone. The clearing house is a voluntary association of banks under the management of a bank where the settlement accounts are maintained. Wherever Reserve Bank of India has its office (and a banking department), the clearing house is managed by it. In the absence of an office of the Reserve Bank, the clearing house is managed by the State Bank of India, its associate banks and in a few cases by public sector banks.

Until the 1st of April 2012, cheques in India were valid for a period of six months from the date of their issue but currently validity period of Cheques, Demand Drafts, Pay Orders and Banker's Cheques will be reduced from 6 months to 3 months, from the date of issue of the instrument.

Cheque Truncation System

Truncation allows for the transmission of an electronic image of all or part of the cheque to the paying bank’s branch, instead of the cumbersome physical presentment.

Since our independence, Indian banking system has been evolved as one of the strongest business competing with the standards and functioning of developed countries. The RBI has taken many reforms for a safe and efficient electronic mode of payment, as well improved efficiency in the paper payment too. In this direction Cheque truncation system is a great mile stone. Amendments to the Negotiable Instrument Act and the Informational Technology Act have been made to facilitate the smooth functioning of the new technology.

On 1st Feb 2008, our banking industry in India launched a new online image-based cheque clearing system called the Cheque Truncation System (CTS) but this was first taken up as a pilot study at New Delhi and this was launched next at Chennai from 24th Sep 2011.After the successful launch in New Delhi & Chennai, it has been decided to operational this system across the country from the upcoming year 2013.  With CTS, a cheque is scanned when deposited and its electronic image, instead of the physical cheque, is transmitted throughout the entire clearing cycle.


In preparation for CTS, the local banking industry has adopted a new one-sized CTS cheque for both corporate and individual customers. These CTS cheques are being issued to customers ahead of the launch of CTS from all the banks as per RBI guidelines with a email/letter notification so that they would be familiar with using the new cheques. From 1^st May 2013, cheques that are not in the new CTS format will be no longer accepted by banks for deposit and payment.

RBI Sample Copy

New Changes(Indication)

 This CTS will completely change the method of Cheque clearing systems in India from exchange-clearing house based physical cheque to the recording and transmission of Cheque scanned images and data via electronic form between banks and the clearing houses. CTS enhance the operational work flow of banks by eliminating the need to move cheques physically from one bank to another and clearing house. This would enable the banks curtail extra cost and human power providing efficient, faster and safer transaction to its customers.

The introduction of cheque truncation and imaging will completely remove the physical movement of cheques and will reduce the total cheque clearance time, as well as eliminating the costs of physically moving the cheque. Truncation allows for the transmission of an electronic image of all or part of the cheque to the paying bank’s branch, instead of the cumbersome physical presentment. The payee is typically credited for the funds on the day of the deposit, and thus receives same day value, but may not be able to draw on the funds until the cheque has cleared.