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CHEQUE TRUNCATION – Business Opportunities. K.S. Bajwa, General Manager –IT Punjab National Bank. Agenda. Working group on Cheque Truncation and E - cheques Cheque Truncation – Concept, Benefits, Point of Truncation Business Process Re-engineering Legal Issues involved

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CHEQUE TRUNCATION – Business Opportunities

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CHEQUE TRUNCATION – Business Opportunities

K.S. Bajwa,

General Manager –IT

Punjab National Bank



  • Working group on Cheque Truncation and E - cheques
  • Cheque Truncation – Concept, Benefits, Point of Truncation
  • Business Process Re-engineering
  • Legal Issues involved
  • Image Service Bureaus – Business benefits.

Working Group on Cheque Truncation and E-cheques

  • Physical cheque will be truncated with in the Presenting Bank
  • Point of truncation will be decided by each individual member Bank
  • Settlement will be generated on the basis of current MICR code line data



Working Group on Cheque Truncation and E-Cheques

  • Grey scale Technology will be deployed for imaging
  • Images will be preserved for 8 years
  • A Centralised agency per clearing location will act as an image warehouse for the Banks
  • Public key infrastructure will be deployed to protect image and data flow over the Network

Cheque Truncation System - Concept

  • Movement of the physical instrument is curtailed
  • Image of the payment instrument is captured along with MICR data simultaneously
  • Clearing Process completed based on Electronic data and image of the Cheques

Benefits of the CTS

  • Facilitate Banks to increase productivity and avail all the benefits of smarter technology of Electronic Cheque Presentment
  • Better Operational efficiency
  • Faster clearing cycle of payment instruments
  • Cost saving in terms of storage and transport cost
  • Optimal Customer satisfaction
business opportunities banks
Improved handling of post-dated cheques deposited by the customer, as the images can be scanned and stored and the system can automatically process the scanned images on the due date.

Improved business intelligence systems can be put in place.

Business Opportunities - Banks
business opportunities banks8
Introduction of new payment system products like e-cheques

Better funds management

Reduction in Transaction cost

Better management of space and manpower

Improved regulatory compliance.

Improved Management Information Systems which will facilitate better decision making.

Business Opportunities - Banks
business opportunities customer
Faster realisation of Funds

Better funds management

Can avoid visit to the Branch as more outlets will be available for depositing cheques for clearing, at convenient locations.

Business Opportunities - Customer
business opportunities vendors
Upgrade of Technology opens up new business opportunities for vendors and solution providers.

Can improve the Brand image of their products by providing improved functionalities for image capture, storage and retrieval

Scope for improvement in processing capabilities , especially scanners and servers

Business Opportunities -Vendors
point of truncation
Originating Branch

ATM / Customer Location

An identified Branch for a Cluster of Branches

Service Bureau

Service Branch of Originating Bank

Point of Truncation
factors to decide point of truncation
Infrastructure required

Capital Cost for set up

Recurring Costs

Distance of the Originating branches from the point of truncation

Technology used

Volume of Cheques / images that will be processed

Facilities available for storing the cheques & images and their retrival

Factors to decide point of Truncation
infrastructure required point of truncation
PC with printer



The configuration of scanner will depend on the volume of Cheques ( Documents per minute) - Approximate capacity – 30 documents per minute (dpm)

Infrastructure Required- Point of Truncation
Capacity of scanner - Documents per minute

Storage of Images – ( Size of 3 prescribed images along with Digital Signature – 75 KB )

Front Gray Scale, Front Black & White and Reverse Black and White


Business Process Reengineering

  • System and Procedures are to be re-looked to enable the Banks to work in electronic cheque processing environment
  • Necessary guidelines to be issued to the Branches to enable them to pass the cheque based on images instead of physical cheques
  • Process of return of cheques and it’s intimation is to be devised.
  • Responsibility of genuineness of the image of the cheque is to be fixed since the drawee Bank will receive only the image of the cheque and not the physical cheque


business process reengineering
As per amended NI Act, 1881 the Presenting Bank will ensure Prima –facie security of various mandatory fields of the cheque like date, availability of signature and chemical/material alteration

Storage of physical cheque – As per amended NI Act, drawee Bank can requisite for physical cheques in case of need.

System will require storage of cheque as per “Banking Companies preservation of Records Rules, 1985”. Point of storage of physical cheques is to be decided

Business Process Reengineering

Legal Issues involved

  • Amendments made in Negotiable Instrument Act, Information Technology Act
  • Onus of verifying the Genuineness of the Cheque will shift to the stage at which it is presented
  • KYC norms are to be meticulously complied by the Banks, as circulated by RBI

Contd ..


Legal Issues involved

  • Drawee Bank will continue to verify the signature and availability of funds
  • Drawee Bank will have the right to seek further information on the veracity/ genuineness of the cheque
  • Drawee Bank can also seek the physical instrument for verification
why image bureaus
Smaller banks will not have sufficient volume of cheques to justify capital investment

Sufficient infrastructure may not be available in the branch or service centre

Operational costs for maintaining the system may be relatively high if sufficient capacity utilisation is not there.

Why Image Bureaus
image service bureaus
Provide image capture, storage and retrieval facilities to a group of Banks for a fee.

High end systems are set up for faster image capture, transmission, storage and retrieval .

Adequate infrastructure put in place to manage the Bureau.

Image Service Bureaus
business benefits for set up of image service bureaus
Source of Revenue

Economy of Scale

Improved Technology can be used as High end systems can be put in place.

Business Benefits for set up of Image Service Bureaus