CTS is an image-based cheque clearing system where physical movement of cheques is stopped. Instead, electronic images of cheques along with relevant data are sent for clearing and settlement.

Key Features of the CTS Clearing Facility:

1. Cheque Truncation:

   • Physical cheques are scanned, and only their images and MICR data are transmitted.

   • Truncation means stopping the flow of physical cheques from presenting bank to drawee bank.

2. Electronic Processing:

   • Uses scanned images (front and back of cheques) for processing.

   • Facilitates faster clearing, often on the same day or next working day.

3. Clearing Houses:

   • CTS operates through grid-based clearing (Northern, Southern, Western grids).

   • Each grid is managed by a central processing location.

4. Standardization:

   • RBI has introduced CTS-2010 standard cheques to ensure uniformity and facilitate image-based processing.

   • These cheques have better security features like watermark, void pantograph, etc.

How It Works – Process Flow:

1. Cheque Presented: Customer deposits a cheque at a bank branch.

2. Image Capture: Presenting bank scans the cheque using a cheque scanner (captures front, back, and MICR line).

3. Data Transmission: The image and data are sent to the clearing house (NPCI/NPCI-run CTS grid).

4. Clearing: The clearing house forwards the images to the drawee bank.

5. Verification and Settlement: Drawee bank verifies the cheque image and data, and then settlement is done via RBI.

Benefits of CTS:

• Speed: Faster clearing and reduced float time.

• Security: Reduces fraud risk due to image-based processing and encrypted communication.

• Cost-Effective: Saves physical transportation and handling costs.

• Environmentally Friendly: Reduces paper movement.

• Audit Trail: Creates a better digital audit trail with time stamps.

Security Measures:

• PKI-based digital signatures

• Secure Image Transfer Protocols

• Image Quality Verification Tools

• Audit Logs and Traceability

RBI Guidelines & Mandates:

• CTS was implemented in phases since 2010.

• From January 1, 2021, RBI made it mandatory for all banks to issue only CTS-2010 standard cheques.

• RBI has instructed the integration of all bank branches under CTS to eliminate physical cheque clearing altogether.

 Types of Cheque Clearing in CTS:

• Inward Clearing: Cheques drawn on the bank.

• Outward Clearing: Cheques deposited with the bank for collection.