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Cheque Truncation System (CTS): how image-based clearing works
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The Cheque Truncation System (CTS) is the RBI's image-based method of clearing cheques. Instead of physically carrying a cheque from the bank where it is deposited to the bank on which it is drawn, the paper cheque is stopped, or "truncated", at an early stage. Its electronic image and key data travel to the paying bank, which pays or returns the cheque based on the image. CTS began in New Delhi in 2008, reached Chennai in 2011 and Mumbai in 2013, and was extended to the rest of the country in later years.
How a cheque is cleared under CTS
- You deposit a cheque at your bank branch.
- The branch scans the cheque and captures the image along with the data from its MICR band.
- The image and data go through the clearing house to the drawee bank, along with a digital signature for security.
- The drawee bank checks the signature, balance and other details on the image, and pays or returns the cheque.
The MICR code
The strip of magnetic ink characters at the bottom of a cheque includes a nine-digit MICR code. The first three digits are the city code, the next three are the bank code and the last three are the branch code. Together with the cheque number and account details, this lets machines read and route the cheque.
Benefits
- Faster clearing, without waiting for physical movement
- Lower processing cost and less paper handling
- Lower risk of loss or tampering in transit
The RBI has also been moving clearing from batches to continuous clearing within the day. Check the latest circulars at rbi.org.in for current timelines.
Related safeguards
- Positive Pay System: the account holder sends key cheque details such as number, date, amount and payee to the bank before issuing a high-value cheque, and the bank matches them at clearing. It began on 1 January 2021 under RBI instructions.
- Validity: a cheque is valid for three months from its date, a rule in place since 1 April 2012.
How bank exams ask about it
Look for "CTS stands for", "the first city where CTS was launched" (New Delhi), "MICR stands for" (Magnetic Ink Character Recognition), and the digits of the MICR code. Compare it with electronic funds transfer: CTS handles cheques, while NEFT, RTGS and UPI are direct electronic transfers. Add it to the payment systems list in banking awareness.
Frequently asked questions
Does CTS mean cheques are cleared instantly?
Not instantly, but much faster than the old physical method.
Is a non-CTS cheque valid?
The RBI has been phasing out old-style non-CTS cheques, so use the current cheque book your bank issues.
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- NEFTNEFT is the RBI-run system for transferring funds between bank accounts in half-hourly batches, available 24x7. Full form, how it works, vs RTGS and IMPS.
- RTGSRTGS is the RBI system for large-value payments settled one by one in real time and final once sent. Full form, minimum amount, timings and exam facts.
- IMPSIMPS lets you transfer money between bank accounts instantly, 24x7, including bank holidays, using a mobile number and MMID or account number and IFSC.
- UPIUPI is NPCI's instant payment system that lets you send money from your bank account using a virtual payment address and a UPI PIN. How it works and exam facts.
- KYCKYC (Know Your Customer) is the identity and address check banks must do before opening an account. Meaning, officially valid documents, e-KYC, V-CIP and CKYC.
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