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Negotiable Instruments Act

(Querist) 25 February 2009 This query is : Resolved 
What is a truncated cheque?
M. PIRAVI PERUMAL (Expert) 25 February 2009
The process in which cheque details are captured by the payee bank (or its clearing agent) and electronically presented in an agreed format to the drawee bank (the bank on which it was drawn) for payment. Unlike the more common form of presentment where a cheque is physically presented to the drawee bank, a truncated cheque is stored by the payee bank.
M. PIRAVI PERUMAL (Expert) 25 February 2009
Date: Jul 01, 2004
Cheque Truncation - Pilot Implementation


Ref: DIT.CO.No. 1/09.63.36/2004-05
July1, 2004

CMDs/CEOs of all Scheduled Banks

Dear Sir

Cheque Truncation - Pilot Implementation

The Reserve Bank has been taking several reform measures to improve safety and efficiency in the payment modes. Though the thrust has been towards a move to the safer and more efficient electronic modes of payment, it is necessary that we take measures to improve efficiency in the paper based modes of payments as well.. The introduction of the Magnetic Ink Character Recognition(MICR) technology for cheque processing and the creation of imaging capabilities helped bring in efficiency improvements in handling volume and reconciliation of clearing differences. However, beyond a point the MICR technology could not speed up the collection process thanks to the logistics involved in the requirement that the cheques have to physically transported all the way from the collecting branch of a bank to the drawee bank branch. The way several countries have sought to solve this problem is by introducing a process called cheque truncation in which the movement of the physical instruments is curtailed at a point in the clearing cycle beyond which the process is completed purely based only on the electronic data and images of the cheques.

2. The question of introduction of cheque truncation in India has been engaging the attention of the Reserve Bank for quite some time. In order to provide legal basis for payment of truncated paper based instruments, we took up with the Government to amend the Negotiable Instruments Act, 1881 and accordingly the Act was suitably amended in December, 2002. A Working Group for Cheque Truncation and e-cheque was constituted by the Reserve Bank in January 2003 under the chairmanship of Dr. R. B. Barman Executive Director, Reserve Bank of India to, among other things, draw a road map for introduction of cheque truncation for the country. The Working Group recommended the suitable cheque truncation model for India. A copy of the Report of the Working Group was forwarded to you vide our letter D.O. DIT/962/09.63.36 dated 18th October, 2003. It is also available on our website A brief write up on the salient features of the recommendations is given in Annex 1.

3. The recommendations of the Working Group have been accepted. Accordingly, it has been decided that an Image based Cheque Truncation Pilot Project be inititated by the Reserve Bank for the Bankers Clearing House of the National Capital Region of Delhi and its nearby areas. The pilot project is expected to be made operational in early part of 2005.

4. Several preparatory steps are required to be undertaken by both the Reserve Bank and the banks for implementation of the project. The Reserve Bank has initiated steps to procure the required hardware and software systems for the central system. The steps to be taken by the banks primarily revolve around the procurement and/or outsourcing of truncation capabilities and adopting related changes in the systems and procedures. You may also form a Policy Group, Implementation Group and nominate Nodal Officers for the purpose. The time frame within which the above tasks are required to be undertaken is given in Annex 2.

5. I request you to initiate action as described above within the prescribed timeframe to ensure launching cheque truncation in the National Capital Region smoothly. Kindly acknowledge receipt of this letter to the Chief General Manager-in-Charge, Reserve Bank of India, Department of Information Technology, Reserve Bank of India, Central Office, S B Singh Marg, Mumbai 400 001.

Yours faithfully

(Rakesh Mohan)

Deputy Governor

Encl : as above

arunprakaash.m. (Expert) 26 February 2009
thank you mr.piravi p
A. A. JOSE (Expert) 26 February 2009
Indeed the information is useful and I thank mr.piravi p for the same.
Desi (Querist) 26 February 2009
Dear Mr Piravi
Thanks a lot for your help. It was indeed much more than i expected to get from the forum.
Desi Matthai
Kamlesh soni (Expert) 26 February 2009
Indeed the information is useful
Adv.Shine Thomas (Expert) 26 February 2009
The above information is useful.Thanks Mr.Piraviperumal
I do agree with all my friends.
B.B.R.Goud. (Expert) 08 March 2009
i do agree with learned friends.

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