Positive Pay System for CTS and Banks

Positive Pay System for Cheque Truncation System (CTS) is the concept muted by Reserve Bank of India, banking regulator, to make cheque based transactions safer by minimising frauds. The plan to introduce Positive Pay System for Cheque Truncation System (CTS) was conveyed by the banking regulator while announcing Statement on Developmental and Regulatory Policies dated Aug 6,2020. RBI has now directed banks to implement Positive Pay System for CTS from January 2021. Cheques of value Rs. 50,000 and above shall be covered under Positive Pay System.

What is Cheque Truncation System (CTS)?

Cheque Truncation System (CTS) is the process whereby the image of cheque or instrument is used for clearing the fund instead of handing over the physical instrument. Please click Cheque Truncation Systems (CTS) to know more about the system.

CTS system is operational across India and covers around 2 per cent of retail payments by volume and 15 per cent by value with an average value per instrument of Rs. 82,000. The security features specified for cheques under the CTS-2010 standard act as a deterrent against cheque frauds. The CTS process supports straight through processing by employing optical / image character recognition technology.

Please watch the video to understand the process flow of positive pay system and working of clearing system

If CTS prevents frauds, then why Positive Pay System?

Cheques prepared based on CTS -2010 standards have sufficient features to minimise frauds. The field placements on the cheques support STP processing ensuring efficiency and speed in processing. However, CTS cheque leaves can be tampered and Positive Pay System is proposed to further augment customer safety. It is estimated that Positive Pay System will cover around 20 per cent of total cheques issued in the country by volume and 80 per cent by value, thereby limiting frauds to cheques with less than Rs. 50,000 in value.

How does Positive pay System work? What are the steps involved?

1. Under Positive Pay System, issuer of a cheque (drawer) on writing the cheque submits minimum specified details of the cheque to his bank through a link or other electronic mode. The details like the cheque number, date of the cheque, payee/ beneficiary name etc shall be submitted.

2. National Payments Corporation of India (NPCI) is entrusted with the task of developing the facility of Positive Pay in CTS for banks. Banks shall educate their customers and ensure that the link / other modalities for data capturing are shared with the customers. Various channels like SMS, mobile app, internet banking, ATM etc will be enabled for the customer to submit the details.

3. The payee/ beneficiary submits the cheque for collection at his branch which in turn submits (presenter bank) the cheque through CTS system for clearing to the drawee branch (branch of the issuer). During the CTS process for cheque collection, the details in the cheque will be cross verified against the details submitted by the issuer of cheque(drawee) to the Positive Pay System.

4. If any mismatches are observed between the details in the cheque and data in Positive Pay system, CTS system will alert the drawee bank and presenter bank for remedial measures.

Is Positive Pay System mandatory?

RBI has advised banks to implement the Positive Pay System by January 2021 and make it available to customers. Participation in Positive Pay System at present, is proposed at the discretion of the payee. However, banks are likely to make it mandatory for cheques for clearance of Rs. 50,000 and above as part of fraud prevention.
Further, RBI has clarified that only those cheques which are compliant with instructions with regard to Positive Pay System will be accepted under dispute resolution mechanism at the CTS grids. Therefore, an issuer of cheque if does not participate in the Positive payment System may find it difficult to get his grievances, including that related to cheque fraud, resolved.

Though Banks have been directed to implement the positive pay system for cheques of Rs. 50,000 and above, the threshold is likely to be lowered in due course as a risk mitigant against frauds.