Main Note - [Payment Systems](Payment%20Systems.md) 1. It is a paper-based payment system. 1. We can categorise all (total) payment systems ( for payment operations) into Digital Payments and Paper-based Instruments (Cheques). 2. As of now, they are cleared through Cheque Truncation System (CTS) 3. Before CTS, the traditional system operated through 66 MICR centers across India. ## MICR System 1. The MICR system introduced in the late 1980s. It used the (Magnetic Ink Character Recognition) 2. It involved physical movement of cheques for clearing. 3. It led to high-speed, machine-readable sorting, which reduced manual errors but still required 3–4 days for processing and settlement.  4. This was also due to the fact that the cheques require their presentment at the branch where they were payable. The restraining factor was the Negotiable Instruments Act, 1881 under which the physical instrument had to be presented to the drawee branch for payment. 5. ==In other words, MICR system involved electronic clearing while physically exchanging cheques.== 6. 2002 - The law was amended in the year 2002 paving the way for the presentment of electronic images instead of the physical instrument. With suitable amendments (Annex I) made to The Negotiable Instruments (NI) Act, 1881, The Information Technology (IT) Act, 2000 and The Bankers’ Book Evidence (BBE) Act, 1891, the legal framework was put in place for the introduction of cheque truncation and e-cheques in India 7. The non-MICR cheques were manually sorted, whereas MICR cheques contained magnetic ink characters (9-digit code) allowing automated high-speed machine scanning. non-MICR cheques are incompatible with these readers. ## Cheque Truncated System 1. 2002 - The law was amended in the year 2002 paving the way for the presentment of electronic images instead of the physical instrument. With suitable amendments (Annex I) made to The Negotiable Instruments (NI) Act, 1881, The Information Technology (IT) Act, 2000 and The Bankers’ Book Evidence (BBE) Act, 1891, the legal framework was put in place for the introduction of cheque truncation and e-cheques in India 1. The Negotiable Instruments Act defines a ‘truncated cheque’ to mean “a cheque which is truncated during the course of a clearing cycle, either by the Clearing House or by the bank, whether paying or receiving payment, immediately on generation of an electronic image for transmission, substituting the further physical movement of the cheque in writing” (cf. Section 6 of the Negotiable Instruments Act, 1881) 2. Thus cheque truncation involves the stoppage of the physical movement of the cheque and the replacement of physical instrument by the image/s of the instrument and the corresponding data contained in MICR line. 3. In other words, in this system, the physical paper cheque does not move; instead its image is used for processing, which results in quicker processing and hence quicker funds realisation, apart from less manual intervention. 4. October, 2002 - In the mid-term review of the Monetary and Credit Policy Statement, the Governor of the RBI suggested that a Working Group on Cheque Truncation be constituted to suggest an appropriate model suitable to Indian conditions, in view of various models of truncation available the world over. 5. In order to examine such issues closely, the Reserve Bank of India decided to constitute a [Working Group on Cheque Truncation](RBI_Group-Committee_20030730_Working%20Group%20on%20Cheque%20Truncation%20and%20E-Cheques.pdf) under the chairmanship of its Executive Director, Dr. R.B. Barman, to inter-alia suggest an appropriate model for cheque truncation in India. 1. Before this, a Working Group on legal issues in cheque truncation was also set up, chaired by Shri N V _Deshpande_, the then Principal _Legal_ Adviser, Reserve Bank of India. 6. July 2003 - The Working Group submitted its recommendations in July 2003, and suggested a presenting bank based truncation model. 7. 2003-[Box XIII.4 Cheque Truncation Model for India](RBI_Annual%20Report_2004.pdf#page=197&selection=109,1,110,33) in RBI's Annual Report 2004 8. 2006-[Box VIII.2-Minimum Standards of Operational Efficiency for MICR Cheque Processing Centres](RBI_Annual%20Report_2006.pdf#page=222&selection=125,0,125,7) in RBI's Annual Report-2006 9. [Sep 21, 2007](RBI_Group-Committee_20070921_Report%20of%20The%20Working%20Group%20on%20Preparing%20Guidelines%20for%20Access%20to%20Payment%20Systems.pdf) - Report of The Working Group on Preparing Guidelines for Access to Payment Systems was published 10. February 1, 2008 - Following up on these suggestions, RBI implemented cheque truncation project on a pilot basis in the National Capital Region, New Delhi. CTS 11. July 01, 2009 - CTS was fully operationalized in the National Capital Region (NCR), New Delhi 12. [February 22, 2010](RBI_Notification_20100222_Standardisation%20and%20Enhancement%20of%20Security%20Features%20in%20Cheque%20Forms.pdf) - RBI announced new benchmark prescriptions for standardisation of cheques known as ["CTS-2010 standard"](RBI_Notification_20100222_CTS-2010%20Standard%20for%20Cheque%20Forms.pdf). 1. Along with MICR (Magnetic Ink Character Recognition) band, this standard also incorporated several other uniform security features designed for image-based clearing. 2. After this, cheques were cleared as CTS-2010 compliant cheques, MICR cheques, or non-MICR cheques. 13. August 2011 - RBI mentioned in its Annual Report 2011 that the second phase of the grid-based Cheque Truncation System (CTS) was nearing implementation at Chennai incorporating the CTS-2010 standard for cheque forms 14. [March 14, 2011](RBI_Notification_20110314_Automation%20of%20non-MICR%20Clearing%20Houses%20–%20Implementation%20of%20a%20new%20Clearing%20Software%20–%20Express%20Cheque%20Clearing%20System.pdf) - Implementation of a new Clearing Software – Express Cheque Clearing System [(ECCS)](http://www.eccs.in/) was announced. 1. It was an improved software application package, with an in-built speed clearing facility introduced in non-MICR clearing houses to replace the clearing house application software package. 2. Apart from the 66 MICR locations (handling around 85% of the total cheque volume and value) for mechanized processing and settlement of cheques, there are around 1,093 non-MICR centres (clearing houses) as on date that use a software called Magnetic Media Based Clearing Software (MMBCS). 3. non-MICR centres sorted 4. It was decided by RBI to roll-out the software across all non-MICR clearing locations in the country by September, 2011. 15. September 4, 2011 - After the success of the pilot run in New Delhi, NPCI was mandated to operationalise the grid-based CTS in Chennai to cover CTS clearing in southern and eastern zones. 16. [December 27, 2011](RBI_Notification_20111227_Standardisation%20and%20Enhancement%20of%20Security%20Features%20in%20Cheque%20Forms-Implementation%20of%20CTS%202010%20standard.pdf) - RBI asked all banks providing cheque facility to their customers, to issue only 'CTS-2010' standard cheques not later than April 1, 2012 on priority basis in northern and southern region which will be part of the northern and southern CTS grids respectively and across the country by September 30, 2012. 17. March 2012 - The grid-based Cheque Truncation System was introduced in Chennai in March 2012. So full cheque clearing volume at New Delhi and Chennai migrated to CTS from July 2009 and March 2012 respectively. 18. [September 3, 2012](RBI_Notification_20120903_Standardisation%20and%20Enhancement%20of%20Security%20Features%20in%20Cheque%20Forms-Migrating%20to%20CTS%202010%20standards.pdf) - RBI asked all banks to ensure replacement of non-CTS-2010 Standard cheques with CTS-2010 standard cheques before December 31, 2012. In other words, Banks were advised to issue only CTS-2010 standard compliant cheques from September 30, 2012. 19. [Nov 6, 2012](RBI_Notification_20121106_Standardisation%20and%20Enhancement%20of%20Security%20Features%20in%20Cheque%20Forms%20-%20Migrating%20to%20CTS%202010%20Standards.pdf) - RBI reminded NBFCs to ensure replacement of Non–CTS-2010 standard compliant cheques with CTS-2010 standard compliant cheques before December 31, 2012. 20. [Dec 14, 2012](RBI_Notification_20121214_Standardisation%20and%20Enhancement%20of%20Security%20Features%20in%20Cheque%20Forms-Migrating%20to%20CTS%202010%20standards.pdf) - The above deadline was extended to March 31, 2013. 21. [March 18, 2013](RBI_Notification_20130318_Standardization%20and%20Enhancement%20of%20Security%20Features%20in%20Cheque%20Forms:Migrating%20to%20CTS%202010%20standards.pdf) - RBI announced the plan for clearing of residual non-CTS-2010 standard cheques beyond the cutoff date of March 31, 2013. Also, all residual non-CTS-2010 cheques with customers would continue to be valid and accepted in all clearing houses [including the Cheque Truncation System (CTS) centers] for another four months up to July 31, 2013, subject to a review in June 2013. 22. April 27, 2013 - CTS clearing operations in Mumbai commenced in April 27, 2013. With this, all clearing houses were divided into these grids. 23. [July 16, 2013](RBI_Notification_20130716_Standardization%20and%20Enhancement%20of%20Security%20Features%20in%20Cheque%20Forms-Migrating%20to%20CTS%202010%20standards.pdf) - RBI announced a plan for clearing of residual (like PDC and EMI cheques] non-CTS-2010 standard cheques. Separate clearing session would introduced in the three CTS centers (Mumbai, Chennai and New Delhi) for clearing of such residual non-CTS 2010 instruments (including PDC and EMI cheques) with effect from January 1, 2014. 1. From Nov 1, 2014 - non-CTS 2010 cheques would be cleared to weekly once (every Monday) 24. December 10, 2013 - RBI entrusted the CTS operations at New Delhi to National Payments Corporation of India (NPCI) mandated them to implement the Grid-based Cheque Truncation System in the Northern Region at New Delhi. 25. By December 31, 2013, CTS was made mandatory for all banks across India. 2010 compliant cheques will continue to be processed in CTS. 26. October 13, 2023 - All the three grids were merged to form a National Grid managed by National Grid Clearing House (NGCH), Chennai. 1. With this all locations across the country were brought under the ambit of one of the three grids. 2. After the merger, all cheques presented through the CTS are being processed as local cheque. Hence, there was a uniform clearing of T+1 day (next day) 27. Jan 1, 2014 - The separate clearing sessions for CTS-2010 standard instruments and non-CTS-2010 standard instruments were introduced on January 1, 2014, as announced on July 16, 2013. 28. July 2014 - ==All 66 MICR centres operating across the country were subsumed in grid-based CTS clearing and MICR clearing was discontinued with effect from July 2014. Thus, the Cheque Truncation System (CTS), standardized under CTS-2010 replaced MICR completely, starting 2014.== 29. July 2018-Frequency of the separate session for clearing of non-compliant cheques in the three CTS Grid centres, was reduced to once a fortnight from July 1, 2018 (every alternate Wednesday, beginning July 4th) and thereafter will be reduced to once a month from September 1, 2018 (second Wednesday of the month, beginning September 12th). 1. The separate clearing session (non-CTS clearing) would be discontinued from December 31, 2018. 2. Banks could, however, continue to present such instruments in Express Cheque Clearing System (ECCS) centres 30. December 31, 2018 - As announced in July 2018, clearing for non-CTS cheques were discontinued. So non-CTS cheques could not be presented in CTS. However, a non-CTS cheque continues to be valid as a negotiable instrument. 31. [Feb 6, 2020](https://rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=49343) - In its Statement on Developmental and Regulatory Policies, RBI announced that a pan-India CTS would be made operational by September 2020. 32. [August 6, 2020](https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=50176) - In its Statement on Developmental and Regulatory Policies, RBI announced introduction of Positive Pay System for Cheque Truncation System (CTS). 33. Sept 2020 - As announced on Feb 6, 2020, all 1,219 (non-CTS) ECCS clearing houses (non-MICR clearing houses) across the country were migrated to CTS effective September 2020. 34. [Sept 25, 2020](RBI_Notification_20200925_Positive%20Pay%20System%20for%20Cheque%20Truncation%20System.pdf) - Positive Pay System would be implemented from January 01, 2021. 35. [February 5, 2021](https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=51078) - In the Statement on Developmental and Regulatory Policies dated, RBI announced the goal of pan-India coverage of CTS by bringing all branches of banks in the country under image-based CTS clearing mechanism. Around 18,000 bank branches were still outside any formal clearing arrangement. In order to bring operational efficiency in paper based clearing and make the process of collection and settlement of cheques faster resulting in better customer service, RBI proposed to bring all such branches under the CTS clearing mechanism by September 2021. Operational guidelines were to be issued by March, 2021. 36. [March 15, 2021](RBI_Notification_20210315_Extension%20of%20Cheque%20Truncation%20System%20(CTS)%20across%20all%20bank%20branches%20in%20the%20country.pdf) - RBI issued guidelines to extend CTS across all the branches, and asked banks to ensure that all their branches participate in image-based CTS under respective grids by September 30, 2021. 37. Centralised Payment Systems (CPS) of RBI - Both [RTGS](RTGS.md) and [NEFT](Payment%20Systems.md#NEFT) are payment systems that are owned, operated, and managed directly by the RBI. They are called "centralised" because all settlement and clearing activities are processed through a single, central platform managed by the central bank. Hence cheque clearing is a de-centralised payment system. >==[FAQs](https://www.rbi.org.in/Scripts/FAQDisplay.aspx?Id=175) on Cheque Clearing (CTS)== >==Cheque Truncation System in "Booklet on Payment Systems" dated Jan 25, 2021.== >[Cheque Clearing](RBI_History%20of%20The%20Reserve%20Bank%20of%20India%20(1997-2008)_Volume%20V.pdf#page=343&selection=24,0,24,15) in History of The Reserve Bank of India (1997-2008)-Volume V >[Information](https://rbi.org.in/Scripts/FS_UsefulInfoCustomer.aspx?fn=9) useful to banks/FIS relating payment systems ## Continuous Clearing of Cheques 1. In present form of CTS, cheques are cleared over a period of T+1 day (if deposited in the morning hours), that is the next working day. 2. Continuous Clearing of Cheques aims to clear cheques same day through multiple batches/clearing cycles. 3. [August 13, 2025](https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12891)- Introduction of Continuous Clearing and Settlement of Realisation in Cheque Truncation System. 1. It has been decided to transition CTS to continuous clearing and settlement on realisation in two phases. Phase 1 shall be implemented on October 4, 2025 and Phase 2 on January 3, 2026. 2. With this, the Cheque Truncation System (CTS) would transition from the current approach of batch processing to continuous clearing with settlement on realisation. 4. [Dec 24, 2025](RBI_Notification_20251224_Continuous%20Clearing%20and%20Settlement%20on%20Realisation%20in%20Cheque%20Truncation%20System-%20Phase%202.pdf) - RBI announced the postponement of the Implementation of Phase 2. ## Foreign Currency cheques 1. Some cheques can be also drawn or payable on banks that are outside the country. Such cheques are called foreign currency cheques 2. FAQs on [US-Dollar Cheque Collection](https://rbi.org.in/Scripts/FAQDisplay.aspx?Id=76) ### Membership 1. [January 17, 2017](https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10833) - Master Directions on Access Criteria for Payment Systems 1. The provisions of these directions shall apply to all scheduled/ licensed banks/PDs/authorised payment system providers (PSPs) who are desirous of participation (membership) in payment systems in India, operated by the RBI - RTGS, NEFT, Cheques (CTS is managed by RBI, and ECCS is managed by other banks) ## Benchmarking 1. [Benchmarking of India's payment systems ## Data Releases 1. ==Payment Systems Report (Half Yearly Publications). [Link](https://rbi.org.in/Scripts/Publications.aspx?publication=HalfYearly)== ## References ### [[Publications (Data Releases) & Research#Research|Research]] [Groups/Committees](Groups%20and%20Committees.md) 1. RBI. (Sep 21, 2007). Report of The Working Group on Preparing Guidelines for Access to Payment Systems. [pdf](RBI_Group-Committee_20070921_Report%20of%20The%20Working%20Group%20on%20Preparing%20Guidelines%20for%20Access%20to%20Payment%20Systems.pdf) ### [[Publications (Data Releases) & Research#Publications|Publications]] 1. RBI. [FAQs](https://www.rbi.org.in/Scripts/FAQDisplay.aspx?Id=175) on Cheque Clearing (CTS). FAQs 2. RBI. (2004). Box XIII.4 Cheque Truncation Model for India. RBI's Annual Report 2004. [pdf](RBI_Annual%20Report_2004.pdf#page=197&selection=109,1,110,33) 3. RBI. (2006). Box VIII.2-Minimum Standards of Operational Efficiency for MICR Cheque Processing Centres. RBI's Annual Report 2006. [pdf](RBI_Annual%20Report_2006.pdf#page=222&selection=125,0,125,7) 4. RBI. (June 4, 2019). Benchmarking India’s Payment Systems-2019. Reports. [pdf](RBI_Reports_20190604_Benchmarking%20India’s%20Payment%20Systems.pdf) 5. RBI. (Jan 25, 2021). Booklet on Payment Systems. Publications/Occasional. [Link](https://rbi.org.in/scripts/PublicationsView.aspx?Id=20315) | [pdf](RBI_Occasional_20210125_Payment%20Systems%20in%20India%20-%20Booklet.pdf) 6. RBI. (Jul 1, 2022). Benchmarking India’s Payment Systems-2022. Reports. [pdf](RBI_Reports_20220701_Benchmarking%20India’s%20Payment%20Systems.pdf) 7. RBI. (Oct 23, 2025). Payment Systems Report (Half Yearly), June 2025. Publications/Half-Yearly. [Link](RBI_Half-Yearly_202512_Payment%20Systems%20Report,%20June%202025_Released-Oct%2023,%202025.pdf) | [pdf](RBI_Half-Yearly_202512_Payment%20Systems%20Report,%20June%202025_Released-Oct%2023,%202025.pdf)