Cheque clearing for the 21st Century
By In the famous movie, Cat | 10 Feb 2006
RTGS implementation in banks presents a staggering Rs25,000 crore opportunity for IT companies. By Jangoo Dalal, Senior VP, Enterprise, Cisco Systems (India & SAARC)
In the famous movie, Catch me if you can, a true-life story of a con artist, the hero posing as a Pan Am employee issues fraudulent outstation cheques and escapes capture repeatedly, only because by the time the cheques are verified, he has fled the scene of the crime. The story that is based in the 1960s, shows how easy it was to take advantage of the existing banking system when technology was archaic and settling outstation instruments had a two-week or longer time lag.
It may be hard to believe, but a similar offence can still go unnoticed even in today's banking system. That is because from a security perspective, paper cheques (the kind we still use today) require expensive and time consuming manual processing that slows fraud detection and makes delivery of settlement information unreliable.
This is not to say that banks have not progressed tremendously in building secure and resilient networks. As a matter of fact, keeping pace with worldwide standards, Indian banks have shortened settlement cycles to a T+2 cycle. The problem still lies with outstation cheques though, which can still take anywhere between two to four weeks on account of their having to be physically transported from the presenting bank located in one city to the drawee bank in another city.
Enter the need for Real Time Gross Settlement (RTGS) - a payment system in which processing and settlement takes place in real time (continuously). How this is achieved is simple - an electronic image of the cheque is transmitted and based on this digitally encrypted image, the payment advice is made and the settlement done.
The significance of RTGS is obvious- in addition to quicker realisation of cheques for the bank's customers; it is also beneficial for banks since it lessens intra- settlement risks and volatility, not to mention significantly cuts down on handling costs.
