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What is a Cheque ? Meaning ?

Cheque is an important negotiable instrument which can be transferred by mere ha

nd delivery. Cheque is used to make safe and convenient payment. It is less risk
y and the danger of loss is minimised.
Different Kinds / Types of Cheques
1. Bearer Cheque:
When the words "or bearer" appearing on the face of the cheque are not cancelled
, the cheque is called a bearer cheque. The bearer cheque is payable to the pers
on specified therein or to any other else who presents it to the bank for paymen
t. However, such cheques are risky, this is because if such cheques are lost, th
e finder of the cheque can collect payment from the bank.
2. Order Cheque
When the word "bearer" appearing on the face of a cheque is cancelled and when i
n its place the word "or order" is written on the face of the cheque, the cheque
is called an order cheque. Such a cheque is payable to the person specified the
rein as the payee, or to any one else to whom it is endorsed (transferred).
3. Uncrossed / Open Cheque
When a cheque is not crossed, it is known as an "Open Cheque" or an "Uncrossed C
heque". The payment of such a cheque can be obtained at the counter of the bank.
An open cheque may be a bearer cheque or an order one.
4. Crossed Cheque
Crossing of cheque means drawing two parallel lines on the face of the cheque wi
th or without additional words like "& CO." or "Account Payee" or "Not Negotiabl
e". A crossed cheque cannot be encashed at the cash counter of a bank but it can
only be credited to the payee's account.
5. Anti-Dated Cheque
If a cheque bears a date earlier than the date on which it is presented to the b
ank, it is called as "anti-dated cheque". Such a cheque is valid upto three mont
hs from the date of the cheque.
6. Post-Dated Cheque
If a cheque bears a date which is yet to come (future date) then it is known as
post-dated cheque. A post dated cheque cannot be honoured earlier than the date
on the cheque.
7. Stale Cheque
If a cheque is presented for payment after three months from the date of the che
que it is called stale cheque. A stale cheque is not honoured by the bank.
Cheque Truncation System:
Cheque Truncation System (CTS) or Image-based Clearing System (ICS), in India, i
s a project undertaken by the Reserve Bank of India (RBI) in 2010, for faster cl
earing of cheques.[1] CTS is based on a cheque truncation or online image-based
cheque clearing system where cheque images and magnetic ink character recognitio
n (MICR) data are captured at the collecting bank branch and transmitted electro

Cheque truncation means stopping the flow of the physical cheques issued by a dr
awer to the drawee branch. The physical instrument is truncated at some point en
route to the drawee branch and an electronic image of the cheque is sent to the
drawee branch along with the relevant information like the MICR fields, date of
presentation, presenting banks etc. This would eliminate the need to move the p
hysical instruments across branches, except in exceptional circumstances, result
ing in an effective reduction in the time required for payment of cheques, the a
ssociated cost of transit and delays in processing, etc., thus speeding up the p
rocess of collection or realization of cheques.
Expected benefits:
For banks[edit]
Banks derive multiple benefits through the implementation of CTS, like a faster
clearing cycle meaning technically possible realization of proceeds of a cheque
within the same day. It offers better reconciliation/ verification, better custo
mer service and enhanced customer window. Operational efficiency provides a dire
ct boost to bottom lines of banks as clearing of local cheques is a high cost lo
w revenue activity. Besides, it reduces operational risk by securing the transmi
ssion route. Centralized image archival systems ensure that data storage and ret
rieval is easy. Reduction of manual tasks leads to reduction of errors. Customer
satisfaction is enhanced, due to the reduced turn around time (TAT). Real-time
tracking and visibility of the cheques, less frauds with secured transfer of ima
ges to the RBI are other benefits that banks derive from this solution.[5]
For customers[edit]
CTS / ICS substantially reduces the time taken to clear the cheques as well as e
nables banks to offer better customer service and increases operational efficien
cy by cutting down on overheads involved in the physical cheque clearing process
. In addition, it also offers better reconciliation and fraud prevention. CTS /
ICS uses a cheque's image, instead of the physical cheque itself, for cheque cle
arance thus reducing the turn around time drastically.
Cheque Truncation System
1. What is Cheque Truncation?
Truncation is the process of stopping the flow of the physical cheque issued by
a drawer at some point by the presenting bank en-route to the paying bank branch
. In its place an electronic image of the cheque is transmitted to the paying br
anch through the clearing house, along with relevant information like data on th
e MICR band, date of presentation, presenting bank, etc. Cheque truncation thus
obviates the need to move the physical instruments across bank branches, other t
han in exceptional circumstances for clearing purposes. This effectively elimina
tes the associated cost of movement of the physical cheques, reduces the time re
quired for their collection and brings elegance to the entire activity of cheque
2. Why Cheque Truncation in India?
As explained above, Cheque Truncation speeds up the process of collection of che
ques resulting in better service to customers, reduces the scope of loss of inst
ruments in transit, lowers the cost of collection of cheques, and removes reconc
iliation-related and logistics-related problems, thus benefitting the system as
a whole.
With the other major products being offered in the form of RTGS and NEFT, the Re
serve Bank has created the capability to enable inter-bank and customer payments

online and in near-real time. However, cheques continue to be the prominent mod
e of payments in the country. Reserve Bank of India has therefore decided to foc
us on improving the efficiency of the cheque clearing cycle. Offering Cheque Tru
ncation System (CTS) is a step in this direction.
In addition to operational efficiency, CTS offers several benefits to banks and
customers, including human resource rationalisation, cost effectiveness, busines
s process re-engineering, better service, adoption of latest technology, etc. CT
S, thus, has emerged as an important efficiency enhancement initiative undertake
n by Reserve Bank in the Payments Systems arena.
3. What is the status of CTS implementation in the country?
CTS has been implemented in New Delhi, Chennai and Mumbai with effect from Febru
ary 1, 2008, September 24, 2011 and April 27, 2013 respectively. After migration
of the entire cheque volume from MICR system to CTS, the traditional MICR-based
cheque processing has been discontinued across the country.
4. What is the new approach to CTS implementation in the country?
The new approach envisioned as part of the national roll-out is the grid-based a
pproach. Under this approach the entire cheque volume in the country which was e
arlier cleared through 66 MICR Cheque Processing locations is consolidated into
the three grids in New Delhi, Chennai and Mumbai.
Each grid provides processing and clearing services to all the banks under its r
espective jurisdiction. Banks, branches and customers based at small / remote lo
cations falling under the jurisdiction of a grid would be benefitted, irrespecti
ve of whether there exists at present a formal arrangement for cheque clearing o
r otherwise. The illustrative jurisdiction of the three grids are indicated belo
New Delhi Grid: National Captial Region of New Delhi, Haryana, Punjab, Uttar Pra
desh, Uttarakhand, Bihar, Jharkhand and the Union Territory of Chandigarh.
Mumbai Grid: Maharashtra, Goa, Gujarat, Madhya Pradesh and Chattisgarh.
Chennai Grid: Andhra Pradesh, Telangana, Karnataka, Kerala, Tamilnadu, Odisha, W
est Bengal, Assam and the Union Territory of Puducherry.
5. What are the benefits of Grid Based CTS over Speed Clearing to the customer?
Even though Speed clearing hastens the process of cheque collection as compared
to outstation cheque collection, it requires the presence of the paying bank bra
nch in the clearing house location. In comparison, grid-based CTS, is a superior
system as it encompasses a larger geographical area and the chances of paying b
ank not having presence in the grid location is seldom.
Under grid-based Cheque Truncation System clearing, all cheques drawn on bank br
anches falling within in the grid jurisdiction are treated and cleared as local
cheques. Cheque collection charges including Speed Clearing Charges should not b
e levied if the collecting bank and the paying bank are located within the juris
diction of the same CTS grid even though they are located in different cities.
6. Is it possible to briefly explain the entire process flow in CTS?
In CTS, the presenting bank (or its branch) captures the data (on the MICR band)
and the images of a cheque using their Capture System (comprising of a scanner,
core banking or other application) which is internal to them, and have to meet
the specifications and standards prescribed for data and images.
To ensure security, safety and non-repudiation of data / images, end-to-end Publ
ic Key Infrastructure (PKI) has been implemented in CTS. As part of the requirem
ent, the collecting bank (presenting bank) sends the data and captured images du
ly signed digitally and encrypted to the central processing location (Clearing H
ouse) for onward transmission to the paying bank (destination or drawee bank). F
or the purpose of participation the presenting and paying banks are provided wit

h an interface / gateway called the Clearing House Interface (CHI) that enables
them to connect and transmit data and images in a secure and safe manner to the
Clearing House (CH).
The Clearing House processes the data, arrives at the settlement figure and rout
es the images and requisite data to the paying banks. This is called the present
ation clearing. The paying banks through their CHIs receive the images and data
from the Clearing House for payment processing.
The paying bank s CHIs also generates the return file for unpaid instruments, if a
ny. The return file / data sent by the paying banks are processed by the Clearin
g House in the return clearing session in the same way as presentation clearing
and return data is provided to the presenting banks for processing.
The clearing cycle is treated as complete once the presentation clearing and the
associated return clearing sessions are successfully processed. The entire esse
nce of CTS technology lies in the use of images of cheques (instead of the physi
cal cheques) for payment processing.
7. What type of instruments can be presented for clearing through CTS?
It is preferable to present instruments complying with CTS-2010 standards for cl
earing through CTS for faster realisation. Instruments not complying with CTS-20
10 standards will continue be accepted but will be cleared at less frequent inte
rvals i.e. once a week(every Monday).
8. Will there be any change in the process for the customers?
No. There is no major change in the clearing process for customers. Customers co
ntinue to use cheques as at present, except to ensure the use of image-friendlycoloured-inks while writing the cheques. Of course, such of those customers, who
are used to receiving the paid instruments (like government departments) would
also receive the cheque images. Cheques with alterations in material fields (exp
lained in detail later) are not allowed to be processed under the CTS environmen
9. What are the benefits of CTS to customers of banks?
The benefits are many. With the introduction of imaging and truncation, the phys
ical movement of instruments is stopped. The electronic movement of images can f
acilitate reduction in the clearing cycles as well. Moreover, there is no fear o
f loss of instruments in transit. Further, limitations of the existing clearing
system in terms of geography or jurisdiction can be removed, thus enabling conso
lidation and integration of multiple clearing locations managed by different ban
ks with varying service levels into a nation-wide standard clearing system with
uniform processes and practices.
Under grid-based Cheque Truncation System clearing, all cheques drawn on bank br
anches falling within in the grid jurisdiction are treated and cleared as local
cheques. No outstation cheque collection charges/Speed Clearing charges to be le
vied if the collecting bank and the paying bank are located within the jurisdict
ion of the same CTS grid even though they are located in different cities.
CTS also benefits issuers of cheques. The Corporates if needed can be provided w
ith images of cheques by their bankers for internal requirements, if any.
CTS thus brings elegance to the entire activity of cheque processing and clearin
g. The benefits from CTS could be summarized as follows
Shorter clearing cycle
Superior verification and reconciliation process
No geographical restrictions as to jurisdiction
Operational efficiency for banks and customers alike
Reduction in operational risk and risks associated with paper clearing
No collection charges for collection of cheque drawn on a bank located within th
e grid.

10. What are the benefits of Grid Based CTS to the banking system?
Grid based CTS provides significant cost savings. Consolidation of clearing loca
tions into a few grids minimise the investment in MICR machines and the related
AMC costs. Banks will benefit from economies of scale as the grid CTS obviates t
he need for establishing inward cheque processing infrastructure at various clea
ring locations. With the merger of many local clearing houses with CTS grids, th
e settlements which were earlier spread across numerous clearing house locations
have been subsumed into a single settlement, thereby significantly reducing the
liquidity requirements for the banks.
CTS will also result in other benefits in terms of reduction in the cheque proce
ssing fee, reduction in operational overhead, elimination of clearing difference
s and reconciliation issues etc.
11. If a customer desires to see the physical cheque issued by him for any reaso
n, what are the options available?
Under CTS the physical cheques are retained at the presenting bank and do not mo
ve to the paying banks. In case a customer desires, banks can provide images of
cheques duly certified/authenticated. In case, however, a customer desires to se
e / get the physical cheque, it would need to be sourced from the presenting ban
k, for which a request has to be made to his/her bank. An element of cost / char
ge may also be involved for the purpose. To meet legal requirements, the present
ing banks which truncate the cheques need to preserve the physical instruments f
or a period of 10 years.
12. How would be the uniqueness of a physical cheque be captured and imparted to
the cheque image?
CTS in India mandates the use of prescribed image specifications only. Images th
at do not meet the specifications are rejected. As the payments are made on the
basis of the images, it is essential to ensure the quality of the images. To ens
ure only images of requisite quality move in the CTS processing cycle, there is
a rigorous quality check process at the level of the Capture Systems and the Cle
aring House Interface (of the presenting bank).
The solution encompasses Image Quality Assessment (IQA) at different levels. The
presenting bank is required to perform the IQA during the capture itself. Furth
er IQA is done at the gateway before onward transmission to clearing house. The
images are captured with digital signatures of the presenting bank and thereafte
r transmitted to the paying banks through the Clearing House. Further, the payin
g banks, if not satisfied with the image quality or for any other reason, can de
mand for the physical instrument before making payment of the instrument.
Further, the new cheque standard "CTS-2010" prescribes certain mandatory and opt
ional security features to be available on cheques, which will also add to the u
niqueness of the images.
13. What are the image specifications in CTS in the Indian context?
Imaging of cheques can be based on various technology options. The cheque images
can be Black & White, Gray Scale or Coloured. These have their associated advan
tages and disadvantages. Black & White images are light in terms of image-size,
but do not reveal all the subtle features that are there in the cheques. Coloure
d images are ideal but increase storage and network bandwidth requirements. Gray
Scale images are mid-way. CTS in India use a combination of Gray Scale and Blac
k & White images. There are three images of each cheques that need to be taken front Gray Scale, front Black & White and back Black & White.
14. How are the images of cheques taken?
Images of cheques are taken using specific scanners. Scanners also function like

photo-copiers by reflecting the light passed through a narrow passage on to the

document. Tiny sensors measure the reflection from each point along the strip o
f light. Reflectance measurements of each dot are called a pixel. Images are cla
ssified as black and white, gray-scale or colour based on how the pixels are con
verted into digital values. For getting a gray scale image the pixels are mapped
onto a range of gray shades between black and white. The entire image of the or
iginal document gets mapped as some shade of gray, lighter or darker, depending
on the colour of the source. In the case of black and white images, such mapping
is made only to two colours based on the range of values of contrasts. A black
and white image is also called a binary image.
15. How the image and data transmitted over the network is secured?
The security, integrity, non-repudiation and authenticity of the data and image
transmitted from the presenting bank to the paying bank through Clearing House a
re ensured using the Public Key Infrastructure (PKI). CTS is compliant to the re
quirements of the IT Act, 2000. It has been made mandatory for the presenting ba
nk to sign the images and data from the point of origin itself. PKI is used thro
ughout the entire cycle covering capture system, the presenting bank, the cleari
ng house and the paying bank. The PKI standards used are in accordance with the
appropriate Indian acts and notifications of Controller of Certifying Authority
16. What is Cheque Standardisation and what does CTS 2010 Standard mean?
Standardisation of cheque forms (leaves) in terms of size, MICR band, quality of
paper, etc., was one of the key factors that enabled mechanisation of cheque pr
ocessing. Over a period of time, banks have added a variety of patterns and desi
gn of cheque forms to aid segmentation, branding, identification, etc., as also
incorporated therein a number of security features to reduce the incidence of ch
eque misuse, tampering, alterations, etc. Growing use of multi-city and payableat-par cheques for handling of cheques at any branches of a bank, introduction o
f Cheque Truncation System (CTS), increasing popularity of Speed Clearing, etc.,
were a few aspects that led to prescription of certain common minimum security
features in cheques printed, issued and handled by banks and customers uniformly
across the banking industry.
Accordingly, certain benchmarks towards achieving standardisation of cheques iss
ued by banks across the country have been prescribed like
quality of paper, wate
rmark, bank s logo in invisible ink, void pantograph, etc., and standardisation of
field placements on cheques. In addition, certain desirable features have also
been suggested to be implemented by banks based on their need and risk perceptio
The set of minimum security features would not only ensure uniformity across all
cheque forms issued by banks in the country but also help presenting banks whil
e scrutinising / recognising cheques of paying banks in an image-based processin
g scenario. The homogeneity in security features is expected to act as a deterre
nt against cheque frauds, while the standardisation of field placements on chequ
e forms would enable straight-through-processing by use of optical / image chara
cter recognition technology. The benchmark prescriptions are collectively known
as "CTS-2010 standard".
All banks providing cheque facility to their customers have been advised to issu
e only 'CTS-2010' standard cheques. Cheques not complying with CTS-2010 standard
s will be cleared at less frequent intervals i.e. weekly once from November 1, 2
014 onwards.
17. What is the prescription relating to alterations / corrections on cheque for
The prescription on prohibiting alterations / corrections on cheques has been in
troduced to curtail cheque related frauds. No changes / corrections can be carri

ed out on the cheques (other than for date validation purposes, if required). Fo
r any change in the payee s name, courtesy amount (amount in figures) or legal amo
unt (amount in words), fresh cheque leaves should be used by customers. This wou
ld help banks in identifying and controlling fraudulent alterations. This prohib
ition is applicable to cheques cleared under the image based Cheque Truncation S
ystem (CTS) only. It is not applicable to cheques cleared under physical exchang
e of instruments.
18. What are the precautions required to be taken by the banks / customers to av
oid frauds?
Banks / Customers should use "CTS 2010" cheques which are not only image friendl
y but also have more security features. Customers may request/insist their banks
for cheque forms that are compliant with the "CTS 2010" standard. They should p
referably use image-friendly coloured inks while writing cheques and avoid any a
lterations / corrections thereon. Preferably, a new cheque leaf may be used in t
he event of any alterations / corrections as the cheque may be cleared through i
mage based clearing system.
Banks should exercise care while affixing stamps on the cheque forms, so that it
does not interfere with the material portions such as date, payee s name, amount
and signature. The use of rubber stamps, etc, should not overshadow the clear ap
pearance of these basic features in image. It is necessary to ensure that all es
sential elements of a cheque are captured in an image during the scanning proces
s and banks / customers have to exercise appropriate care in this regard.
Cheque clearing
Cheque clearing (or check clearing in American English) is the process of moving
a cheque from the bank in which it was deposited to the bank on which it was dr
awn, and the movement of the money in the opposite direction. This process is ca
lled the clearing cycle and normally results in a credit to the account at the b
ank of deposit, and an equivalent debit to the account at the bank on which it w
as drawn.
Cheque Clearing & Nift Processing
2014 Semester II
2. ABOUT ASKARI BANK Askari Bank Ltd (formerly Askari Commercial Bank) is a comm
ercial and retail bank in Pakistan It was founded on October 9, 1991, as a Publi
c Limited Company. On June 21, 2013 the bank was acquired by Fauji Group. It is
a branch of Army welfare organization. (AWT). The Bank is listed on the Karachi,
Lahore & Islamabad Stock Exchanges
3. ABOUT ASKARI BANK Askari Bank has expanded into a nationwide presence of almo
st 250 Branches, and an Offshore Banking Unit in Bahrain. A shared network of ov
er 3000 online ATMs covering all major cities in Pakistan supports the delivery
channels for customer service. As on December 31, 2013, the Bank had equity of R
s. 9 billion.
4. CLEARING The transfer of fund from a branch of bank to the other bank on whic
h the instrument is drawn, without involving cash through state bank s clearing hou
se .
5. TYPES OF CLEARING ?Inward clearing ?Outward clearing
6. INWARD CLEARING Inward clearing means cheques received by the bank from other
7. INWARD CLEARING ?The inward clearing process decreases the deposits of the ba
nk. ?The main operational task done by the banks were: ? Validation of customer
account with the CORE BANKING SYSTEM (CBU). ? Searching the physical instrument or
return in. ? Archival of all the physical instrument.
8. OUTWARD CLEARING Outward clearing means cheques sent for collection
9. OUTWARD CLEARING OR The cheque of other bank, which the account holder deposit
in their account Outward clearing increases the deposits of the bank.


the same geographical/clearing zone) ?INTERCITY CHEQUE CLEARING (drawn on a bank
outside the local clearing zone) ?FOREIGN CHEQUE CLEARING (drawn on a bank/loca
tion outside the country of the collecting bank)
11. EXAMPLE When we receive inward clearing we have to debit our customer accoun
t and when we receive outward clearing we have to send it to relevant bank for p
ayment. For example: A cheque drawn on HBL deposited in MCB bank is an outward chequ
e for MCB & is an inward for HBL
12. INWARD In inward we are the paying banks OUTWARD In outward we are the colle
cting banks on behalf of the customers & will launch the instrument in clearing
13. CLEARING INSTRUMENTS ?Cheques ?Demand draft ?Pay order ?Travelers cheques
15. ABOUT NIFT NIFT - National Institutional Facilitation Technologies (Pvt.). L
td. was incorporated in September 1995 as joint venture between a consortium of
six banks and entrepreneurs from the private sector. All commercial banks and al
l of their branches in major cities avail NIFT services. As of January 2014, 38
commercial banks and their 8382 branches in 273 major cities, and towns utilize
NIFT services through 28 Data Centers.
16. ROLE OF NIFT IN CLEARING ? NIFT commenced its ACH(automated clearing house)o
perations in 1996, after signing an agreement with THE STATE BANK OF PAKISTAN. ?
ACH is computer based clearing & settlement facility for interchange of electro
nic debits & credit among Financial Institution.
overnight clearing included return cheques
processing (24 hour clearing cycle) ?SAME DAY / HIGH VALUE CLEARING Same day/hi
gh value clearing included return cheque processing(3 hour clearing cycle)
18. NIFT SERVICES ?INTERCITY CLEARING Intercity clearing included return cheque
processing (48 hour clearing process) ?COUNTRY WIDE LOCAL US DOLLAR CLEARING Cou
ntrywide local US $ dollar clearing included return cheque processing (5 day cle
aring cycle)
19. MICR SPECIFICATION MICR (magnetic ink character recognition) is a technology
used to verify the legitimacy or originality of paper documents, especially che
cks. Special ink, which is sensitive to magnetic fields, is used in the printing
of certain characters on the original documents.
22. Outward Cheques deposited Scrutiny of cheque & deposits slip Stamping Postin
g Separate deposits slip & cheque Make bundle of 50 cheques per list Send to NIF
T Bundle cover Final voucher prepared
24. Inward Cheque withdrawals Scrutiny of cheque & stamps Posting Cancelation Se
nd to account dept Returns marked Attach return memo Return voucher prepared Sen
d to NIFT Transfer stamp
27. ITEMS NECESSARY FOR CLEARING INSTRUMENTS ?Crossing stamps ?Clearing stamps ?
Date(which should be current) ?Endorsement stamp on back side ?Amount in figures
& words should be matched ?Signature verification
At the front office cheques are rece
ived. The cheques are then stamped with the clearing stamps
The amount of cheque
is then posted in the system. i.e. this amount is Cr. In the customer s account N
ext the clearing cheques & other instruments are endorsed by the bank through th
e signatures of the of an authorized signatory The cheques /other instruments &
deposits slip are separated & the clearing instruments are prepared in the bundl
es Each bundle of clearing instruments is add listed & counted & send to NIFT

34. PROCEDURE AT NIFT The instruments received from each bank are then passed th
rough a scanner. Preparation of slips which contains the amount & number of all
the instruments received from a bank Instruments are seperated & are bundled acc
ording to their respective branches The main account branch account will be Cr.
Or Dr by the net difference
39. ADVANTAGES TO BANK ?Central repository ?Sound management ?Cuts cost ?Shorter
cycle ?Saves employees effort ?No loss of cash ?Convenient
40. ADVANTAGES TO CUSTOMER ?Short cycle ?Responsive ?Safety ?Simplicity
Solving Business Problems
Solving Business Problems
Competitive Strategy Fundamentals
Competitive Strategy Fundamentals
Entrepreneurship Fundamentals
Entrepreneurship Fundamentals
Final Prresentation
Final Prresentation
Saifullah Khalid
Sethu Gautham
Cheque Clearing & Nift Processing
Cheque Clearing & Nift Processing
Usman Kashmiri
Cheque Clearing & Nift Processing II
Cheque Clearing & Nift Processing II
Usman Kashmiri
Mcb bank
Mcb bank
Instruments of banks
Instruments of banks
???? ?????
Cheque Truncation System
Cheque Truncation System
Newgen Software Technologies Limited