Welcome & Opening Address
H N Sinor - Chief Executive,
Indian Banks' Association
Key points

• New regulations have been ushered in by the government to create a modern, efficient, robust and integrated Payment settlement system.
• RTGS, ECS, EFT have all resulted in more efficient payment and settlement cycles.
• Cheque Truncation will reduce physical clearing to a few hours. However, banks would need to address operational risks, plan for BPR, plan for changes in the mindset of employees through training to go through the transformation. Also, legal and audit issues need to be addressed.

Indian Imperatives in cheque truncation initiative
Dr. R B Barman,Executive Director,
Reserve Bank of India

Key points

• The seminar was timely and apt
• Payment systems need to become more efficient and Cheque truncation is a step in this direction
• Cheque truncation will reduce costs for the country as a whole and also reduce liquidity risks
• Amendments have been made to the IT Act, Negotiable instruments Act and other legislations to enable implementation of Cheque truncation
• Customers will be the biggest beneficiaries of cheque truncation because of reduction in time for clearing
• Bank floats would disappear.
• Data and information collected through the Cheque Truncation system will be used for reducing frauds

Key Note Address
Ms. Chanda Kochhar, Executive Director,
ICICI Bank Ltd.

Key points

• Cheque truncation is the next logical step in Payments system after MICR, ECS, EFT & RTGS. This would put India on the global map.
• Reasons for Cheque truncation
  o Banking is becoming more complex & transaction intensive
  o Growing share of retail banking
• The technology challenge for banks
  o Each bank can adopt its own model that suits its specific requirement (centralized or decentralized or Hybrid) & depending on its technology readiness
  o Banks could come together and develop specific models including sharing services
• Types of models
  o Centralised Imaging system - N+N
  o Decentralised system (any location) - N*N
  o Hub & spoke model - Hybrid model
• The choice of the model would depend on the customer service, the distribution network and the technology readiness of the bank
• Investments would be required in bandwith, hardware and linking the core banking system to the imaging system
• ICICI Bank has already moved to a image based processing system and has achieved cost savings and significant reductions in errors. The bank plans to introduce automated cheque acknowledgement when cheques are dropped into the Cheque drop box. These receipts will provide the customer with both the image of the cheque deposited as well as the deposit details input by the customer
• Banks need to evaluate the possibilities of using a shared infrastructure (between banks) or availing cheque truncation services through an independent service provider before making investments in CTS
• Banks would need to evaluate connectivity aspects as these have a bearing on bandwidth and cost- use of image transfer on a batch wise basis versus a continuous basis. Also using black & white scanning for cheques below a certain value, versus grey scale scanning has an impact on cost
• Training would need to be imparted on new work flows, image based clearing and measures to control fraud
• Benefits of Cheque truncation
  o Reduction in turn around time from 15-20 days to 3-4 days
  o Reduction in service issues related to cheques lost
  o Improved customer service levels
  o Lower cheque handling costs - elimination of courier costs and other costs associated with paper instruments
• CTS is imperative with the changing nature of business.
• It is a challenge but can be handled by breaking it down into smaller and manageable steps

A New Realty - Is a greener payment landscape possible?
Enoch Ch'ng, Senior Director,
Monetary Authority of Singapore (MAS)

Key points

• Mr. Enoch spoke about the future of Payment Systems. He said that value has moved from physical form to digital form and that information is a critical asset that requires protection from disclosure, alteration and destruction.
• The Singapore government has encouraged the use of electronic payment systems as early as the 1970s and has been fairly successful. As of date electronic systems are widely used across a wide spectrum of transactions ranging from the use of public transport and public phones to paying bills and taxes. The efforts were highly successful because they were focuses on meeting business needs namely
  o Improved service levels
  o Lower costs
  o Greater accessibility &
  o Reduced risks
• More established instruments like credit cards, GIRO & cheques enjoy wider consumer acceptability as compared to newer instruments like mobile & internet. He cited convenience as being the key driver for mass consumer adoption scoring higher as compared to security or incentives.
• The role of the Regulator is to focus on entities that issue payment instruments and entities providing the settlement function. For the rest of the value chain which deals with routing, processing etc, the regulatory concerns are limited and hence this has been left to various players in the market.
  

Cheque truncation systems - Service Model and implementation experience
Wong Nang Jang - Chairman,
BCS Information Systems Pte Ltd

Key points

• Cheques are here to stay. Cheques are still one of the widely used instruments. Key reasons for the use of cheques being -
  o They do not require a computer or debit card reader at the point of sale
  o Post dating feature capability
  o Facility of dual signatures
  o Many people still distrust modern electronic modes of payment
  o The strategic significance of cheques for banks
• Problems associated with cheques
  o Inherent manual handling process
  o High costs for banks
  o High transportation costs between parties
• Definition of Cheque truncation - the replacement of the physical cheque flow with electronic information within all 4 legs of the clearing cycle (Outward clearing, Inward clearing, Outward returns, Inward returns)
• Key challenges while implementing the Singapore cheque truncation project
  o Revamping the clearing house
  o Conceptualising the Cheque truncation system
  o Diverse bank profiles with different levels of operational readiness
  o Operational and legal considerations
  o Setting up of service bureaus
• Key benefits
  o Efficient and streamlined processing of images
  o Elimination of transportation of physical cheques
  o Shorter clearing cycles
  o Extended cut off time for cheque submission
  o Real time clearing positions available to banks throughout the day
  o Economies of scale with centralised National Image archieve
  o Automated inward signature verification process
  o Fraud prevention measures -
  § Kiting made difficult
  § Black listed accounts flagged
  o Built in anti money laundering features

Indian Cheque Truncation Initiatives - Key Challenges in the Indian context
Ravi Trivedy, Financial Services Sector Head , IBM.

Key points

• Cheque volumes will continue to increase for the next 5 - 7 years
  o Slow consumer adoption of electronic payments
  o Cash economy and the use of PDC feature in India
• Key challenges
  o Geographical spread and volumes impact speed of physical movement of paper (especially inter city)
  o Multiple language and scripts
  o Multiple handling due to current processes in branches can result in high rejects in the imaging process
  o Legal & regulatory issues
  o Lack of centralised banking systems in many banks to enable STP
• The Cheque truncation initiative will have a major impact on payment operations
  o RBI implementing big bang approach in the National Capital region
  o Banks need to decide on their individual cheque truncation models
• Value realisation will differ from bank to bank. Reduced costs, improved customer service and increased flexibility will drive each banks cheque imaging decisions
• Banks will potentially lose a large income leverage with RTGS and implementation of cheque truncation
• IBM has a structured methodology to assist banks with their cheque truncation and cheque imaging initiatives

Indian Cheque Truncation initiatives - Challenges
Kaza Sudhakar, General Manager(IT),
Reserve Bank of India

Key Points

• RBI is currently in the process of evaluating vendors on technical grounds
• Only 2 legs will be imaged. The returns leg is kept out of the current cheque truncation plan
• Physical cheques to remain at the branch
• The cheque truncation system implemented by RBI will have open standards. RBI will provide the CHI. CTS help desk will be in place.

Presentation by

• Ms. Chanda Kochhar
• Wong Nang Jang

Speakers' Reactions at the IBA-IBM Seminar on
Cheque Truncation held on December 6, 2004 at Mumbai.

"Very timely seminar, excellently arranged with experts from country
implementing it".

Dr R B Burman
Executive Director
Reserve Bank Of India

"My compliments to the IBA for taking this step and initiating this seminar on this progressive topic.The seminar is very well organized and is very well attended".

Smt.Chanda Kochar
Executive Director
ICICI Bank Limited

"Many Congratulations on the important milestones you have achieved so far.I wish you every success in your bold undertakings".

Enoch Ch'ng
Executive Director
Specialist Risk supervision Department
Monetary Authority of Singapore

"An excellent seminar-Well run, good content and actively participated".

Wong Nang Jang
Chairman
BCS Information Systems Pte.Ltd.
BCS Pte.Ltd.
Singapore

"Thanks for organizing this seminar which is timely and educative our banks which have to implement the Cheque Truncation Project".

Kaza Sudhakar
General Manager(IT)
Reserve Bank of India

"Very timely.Excellent Perspectives".
Ravi Trivedy
Partner and Head(FS & TCBCS)
IBM Global Services India Pvt.Ltd.

"Extraordinarily Valued".

S V Haribhakti
CEO-Haribhakti Group