Does India need a cheque truncation system?

Abstract

The Cheque Truncation System (CTS) helps ‘local clearing’ of ‘outstation cheques’, improves the efficiency of physical clearing and improves overall payment efficiency. While it was good when it was conceptualised in the last century, given that there are now other options such as ‘Payable at Par’ (PAP) cheques and the Speed clearing process, which helps ‘local clearing’ of ‘outstation cheques’, the point of discussion is whether it is relevant now. Also, electronic payment (EP) options are growing phenomenally in India, where EP by value are over 60 per cent of the total payment value for the year 2008–2009. This paper briefly explains PAP clearing and Speed clearing, analyses payments through paper-based and EP methods, looks at the stat­istics of PAP clearing and Speed clearing in three locations in India — including one locations where CTS is fully implemented — and identifies many options for moving physical payments to EP. Subsequently, based on the past trend, using statistical tools, the volume and growth of both paper-based payments and EPs in India are forecast for the next three years to conclude that, by the financial year 2012–2013, EP would contribute about 83 per cent by value and about 38.55 per cent by volume; only EP value is growing exponentially and all other items, ie cheque volume, EP volume and cheque value, are growing only in a linear fashion, and cheque volume is starting to decline. The paper concludes that CTS does indeed need a re-evaluation if the plan is to implement it in its current form.