Indian banks turn to image-based cheque clearing

Clearing inter-city cheques has traditionally been a tiresome and time-consuming process. That’s set to change as image-based cheque clearing debuts and Indian banks start clearing outstation cheques within days rather than weeks, says Venkatesh Ganesh

A system that prevailed for over a century is finally set to change. Lakhs of cheques are transported every day from various financial institutions to reach the branches where the concerned accounts are maintained (upon which the cheques are drawn). The massive number of cheque-based transactions, makes manual sorting a Herculean task. For instance, in Mumbai alone over eight lakh cheques come for inter-city clearance on a daily basis. This problem is compounded by India’s vast geography, cheques have to travel thousands of kilometres and they get routed through two or three processing centres on their way. The result is that clearing an outstation cheque can take up to 15-20 days.

What’s a banker to do then? Banks are latching on to a technology called ‘Image-based clearing’ that lets banks clear inter-city cheques in two days flat. In an image-based cheque clearing system, the cheque’s image is captured using a scanner at the payee branch. This image is transmitted electronically to the payer branch or service branch where the system continuously receives and processes cheque information. The paying institution returns an image of the cheque to the presenting bank. The upshot of all this is that a physical cheque doesn’t have to travel (within a bank, between different branches or between banks and the clearinghouse) for it to be cleared, the electronic image of the cheque is used instead and it is transmitted in a split second. This may seem to be a simple concept, but it has the potential to eliminate delays arising out of paper-based processing and transportation of physical cheques. The system reduces the time span for clearing cheques and it helps banks and the clearinghouse deploy their services in a more effective manner.

A few forward-looking banks such as Punjab National Bank (PNB) and the SBI have already implemented an image-based cheque clearing system. PNB has gone in for an image-based clearing system from NCR Corporation. The bank hopes to clear inter-city cheques within 48 hours (two days) of the cheque being presented at select centres.

Hareish Makhija, Program Manager, Payment Solutions, Offshore Development Centre, NCR India says, “Image-based clearing systems have great potential in India as implementing them can result in huge cost savings for banks. The expenses incurred in archiving, storing and transporting documents can be drastically reduced.” Makhija estimates the cost savings for a mid-sized public sector bank to be in the range of Rs 20-25 crores per year. NCR is running a pilot for PNB where this technology is going to be implemented at eight locations. A real-time implementation will follow.

S K Awasthi, General Manager, PNB adds, “The benefits of electronic cheque presentment will be seen both in the back-office and at the customer interface. It will streamline cheque handling and speed up the clearing process to give our customers faster access to their money. It will also enable critical savings for our bank at a time when we are under pressure to reduce processing costs.” While the actual cost of the solution depends upon the number of branches that decide to adopt this technology, the minimum cost for a bank is in the range of Rs 2.5 crore.

Handling rubber cheques

Indian banks have evaluated this technology. A natural question that arises is how this system will handle forged or dishonoured cheques? Diwakar Nigam managing director, Newgen Software Technologies Limited explains, “In the case of a dishonoured cheque, a written notification is sent from the central server and the details (this includes a code, the cheque details and the image) are later dispatched to the relevant banks.” This image-return

document is sent to the payee and it acts as a substitute for a dishonoured cheque. Newgen Software has developed an image-based cheque clearing solution for the SBI.

With banks adopting varied technology, there is the danger that different imaging systems will not talk to each other. SBI uses Newgen’s technology while PNB uses NCR’s ECPIX. Both vendors are confident, however, that RBI directives will enable their solutions to inter-operate with other imaging solutions (and with each other).

Image-based cheque clearing is still an emerging concept, there are no clear laws. This may impede the deployment of these systems. While bank regulators in countries such as Singapore do not allow high-value cheques to be cleared using the same process that applies to normal cheques, there are no such regulatory hurdles in India. Opines Makhija, “The RBI hasn’t specified any particular cut-off point for high-value cheques. It’s the same whether it is a cheque for Rs 500 or Rs 5 crores.” However, overseas cheques cannot be cleared using this technology.

Keeping up with the Joneses

While it is still too early to predict the impact of this technology, the intent is positive. Delays in clearing outstation cheques are detrimental to the smooth functioning of the economy and with the increasing usage of technology in banking, customers expect quicker response times. With the US, Singapore and Hong Kong adopting this technology, Indian banks have to gear up and follow suit. NCR has implemented this solution in Nigeria and it hopes to leverage the knowledge gained from that implementation to roll out its solution in India. That said, image-based cheque clearing systems still require branches to be computerised, networked and connected to the bank’s payment gateway. Private banks have the systems in place to adopt this kind of solution but PSU banks will need to get their systems in place before they can reap the benefits of this technology. Despite that, it is heartening to note that two PSUs have been the first movers in this area.

Snapshot of image-based cheque clearing systems
What it is	In an image-based cheque clearing system, cheques are scanned at the payee branch and the images are transmitted electronically to the payer branch / service branch.
What it does	An outstation cheque takes a minimum of 15-20 days to clear. By using an image-based cheque clearing system a bank can clear outstation cheques within two days.
Potential savings	Banks can reduce expenses incurred in archiving, storing and transportating documents. For example, a typical mid-sized bank can save roughly Rs 20-25 crore in a year

venkatesh@expresscomputeronline.com