CTS is only the first step for banking sector
The Indian banking system endures a very high volume of paper check processing, as much as 4.5 million checks every year. Since the check system serves a strong purpose, the Reserve bank has decided to increase the efficiency of the existing check clearing system. The successful introduction of Check Truncation System (CTS) as a pilot project in NCR/Delhi in February 2008 was the first step. It has paved the way for better customer service by speeding up transactions, reducing the cost of clearing and drastically reducing the chances of check fraud that have plagued the banking and finance industry.
However, the paradigm shift to CTS is only the first step. The pilot project provides us with insights regarding how to further improve the efficiency and accuracy of the Check Clearing Process. Some of the existing loop holes in the system need to be capped before they can be exploited by fraudsters and swindlers. In a proactive measure, the Reserve Bank of India recently announced that Check alteration will be disallowed. As per the RBI circular - DPSS.CO.CHD.No. 1832/04.07.05/2009-10 dated 22nd February 2010, with effect from 1st December, 2010 alterations or modifications in checks will not be allowed (even if a signature has been made at the place of alteration). Altered checks of any kind will not be honored by banks. The only alteration that will be allowed will be alteration to the date field. But even this will be discouraged. Customers will be advised to issue a fresh check in case any corrections need to be made.
How the CTS solution works is that it checks presented to the bank are captured as electronic images. These serve as replacements for the physical checks. It captures the extracted data from the electronic images and ensures check validation, technical and signature verifications with minimal manual intervention.
According to the authority matrix defined in the system, the CTS solution supports second-level Technical and Signature Verification under the maker-checker concept. The solution supports OCR for warrant number and payee name extraction and auto matching of the same with the master data. For outward clearing, the electronic images of the checks are captured. The CTS solution enables image quality check, image verification and correction of the IQA (internal quality assurance) failed checks, manual data entry and data verification. These are then exported as files to the Reserve Bank of India in a prescribed format.
Disallowing check alteration is an affirmative step that will make the CTS cycle more robust and less vulnerable to manipulation. However this measure, though welcome, may prove to be a double edged sword. On the one hand it will provide a lot of respite to banks by reducing fraud, but on the other it will add to the bank’s operational woes as now all checks will have to be manually verified for any alterations.
To counter this operational problem, there are software solutions available that automatically detect alterations and countersigns in checks. For example the Newgen CTS software has been updated to detect any type of alterations and countersign on the payee name, amount in words and numbers. These software solutions will ensure that there is no additional burden on operations and they can continue to function as before.
When the RBI ruling initially came out, there was a lot of confusion in the banking fraternity. It was assumed that the new mandate was applicable across the country. The RBI however clarified its stand on prohibiting alterations/ corrections on checks by stating that it will be applicable only for checks cleared under the image based Check Truncation System. So clients outside NCR Delhi don’t have to worry about the new directive. It is not applicable to checks cleared in regions that currently employ MICR clearing, non-MICR clearing or over the counter collection (for cash payment) systems.
The advent of a new technology means change, and it is the nature of users/customers to resist change. Therefore, the success of a new technology is sometimes determined not just by the benefits it offers but how tactfully and effectively customers are educated and sensitized about the change. Banks will need to play the dual role of the baton holder and the tutor. They will need to ensure that adequate measures are taken to educate the customers and to create awareness among them so that the transition ensues smoothly and the bigger purpose is eventually achieved.
(The author of the article is Virender Jeet, senior VP, technology for Newgen Software)
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