Bank customers deprived interest income due to delay in CTS clearances

RBI implemented CTS in 2014 for faster clearing of cheques. But, there still are technical or operational issues in bank system leading to delay in cheque clearing. It means loss of savings account interest. Can RBI ask banks at fault to compensate for the delay by paying the interest?

Consumers depositing cheques at bank branch before the cut-off time (usually noon) should expect to get cheque clearance by following business day. The money gets debited from cheque accountholder and credited to your account on the same day so that there is no loss of savings account interest. The cheque truncation system (CTS) was introduced to eliminate the practice of physically presenting a cheque to the payee bank, thereby substantially reducing the time for cheque clearance. However, despite using the CTS, there are examples of delays in cheque clearenace. Ironically, the bank at fault keeps the money without giving interest to the customer for the delay in clearing. How much could this amount be worth?

CTS or Image-based Clearing System (ICS) is an initiative of the Reserve Bank of India (RBI) for faster clearing of cheques. CTS is an online image-based cheque clearing system where cheque images and Magnetic Ink Character Recognition (MICR) data are captured at the collecting bank branch and transmitted electronically. It eliminates the need to move the physical instruments across branches, except in exceptional circumstances. The goal is to reduce the time required for payment of cheques and to lower the cost of transit.

One of the readers of Moneylife deposited a CTS compliant cheque in Yes bank drawn on Axis bank (his own account) on 10th March. The money was debited from Axis bank on 11th March, but credited to Yes bank only on 12th March. Similarly, he deposited a CTS compliant cheque in Yes Bank drawn on Bank of Maharashtra (again his own account) on 12th March. The money was debited from Bank of Maharashtra on 13th March, but credited to Yes bank only on 14th March. The customer made complaint to Yes Bank about loss of Rs50 saving account interest due to delay in credit given by the lender.

To his surprise, he was told that the delay was from other banks. When asked for proof, he was given extract from RBI circular. It says, “This is to inform you that due to Operational / Technical Issues at below mentioned banks they are not able to participate in today’s CTS Return Clearing Session(3)-dated 11th March 2014. As per Approval from RBI, National Payments Corporation of India (NPCI) has granted an extension to following banks for one day.” There is a list of 20 bank routing numbers along with names.

It means that cheques from these specified 20 bank routing numbers were allowed one day extension in CTS clearing. Axis Bank routing number was present and hence it proves that delay was from Axis bank. But, why does the amount get deducted from bank account if there was one day extension given? It means that Axis Bank did not give interest for one day to its customer even though the money was still with the Bank. How many such accountholders lost interest for one day?

Similar proof was given for 13th March delay in clearance. There is a list of five bank routing numbers including Bank of Maharashtra. Again, Bank of Maharashtra had debited the amount on 13th March even though it did not participate in CTS clearing. A case of bank at fault keeping the customer interest for a day! Based on the number of cheques processed, this can be a sizable amount of interest the bank gets to keep without giving it to its own customers who have the right on it.

According to the latest data available from Department of Payment and Settlement Systems of RBI, as of 31 March 2013, the banking system cleared 131.4 crore instruments (cheques) worth about Rs100.2 lakh crore.

In most cases one day interest may not be sizable amount for an individual and hence the customer will not follow-up with the bank. However, in the above case, the customer did write to Bank of Maharashtra giving details of the proof given by Yes Bank. The customer was given credit of one day interest by Bank of Maharashtra, which proves that customers today are facing not just delay of cheque clearance but also loss of bank saving rate interest for a day or more. Will RBI issue a  circular so that banks give necessary credit for loss of interest without the customer asking for it?

The same Moneylife reader deposited a cheque in Yes Bank drawn on Bank of Maharashtra and Saraswat Bank (both his own accounts) on 2nd April. There was the exact same issue with both cheque clearances. The complaint with Yes Bank yielded exact same answer with extract from RBI circular. Is it just a coincidence that Bank of Maharashtra appears again? This time the RBI circular has a list of 32 bank routing numbers which includes nationalised, private, foreign and co-operative banks.

Does it mean that the issue is now rampant? What is the exact operational/ technical issue the banks are facing? What actions are banks taking to solve the issue?

According to a report from DNA, during February 2014, in Ahmedabad, there were over 80,000 cheque instruments worth Rs750 crore delayed due to CTS clearances. “The system was introduced to make the clearing system faster and easier. But the existing manpower is still not fully trained to handle the new technology. In many cases, the scanned pictures of cheques are delivered as a corrupt file to NPCI,” the report says.

RBI will understand that it is impossible for customers to do follow-up with two banks to get credit of one day’s bank savings interest. One may even face ridicule from banks for asking for one day’s interest even though the bank at fault ends up keeping interest of thousands of cheques. CTS cheque clearance is facing delays and it does not seem to have made cheque clearance faster from customer viewpoint.

Is the RBI pushing bank consumers to use National Electronic Funds Transfer (NEFT) and Real Time Gross Settlement (RTGS) instead of writing cheques? If you are transferring big amount from one account to other own savings account, it will be wise to do RTGS. It will avoid the situation of one-day interest loss, which can be a big loss. The cost of RTGS will be lower than the pain you will suffer in getting back your one day interest loss. Will banks even share with you the RBI circular which grants one day of extension for CTS clearance?

Will RBI make the banks pay for their operational or technical issues?

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Cheque truncation system: What is it, how will it benefit you?

gurpreet singh
7 years ago
i am looking for job in CTS system.. can anyone can tell whose is hiring engineer for implementation cts system in punjab.. here is my email id:- [email protected]
i will be very thankful to you for this
Kishore Gersappa
8 years ago
There is one more problem which I have encountered with CTS cheque clearance. As a society we get cheques from members which we deposit in Maharashtra State co-operative bank. We noted from our passbook that there was an entry on check return and deduction of the penalty amount, but without the check being actually returned to us, the cheque in subsequent entry showed to be cleared but the penalty amount not reversed to us. On enquiry with the bank,I was told that the payee bank had not cleared the amount due to bad image of cheque. Sending a bad image is a bank responsibility, why should the customer be charged.
Kishore Gersappa
8 years ago
There is one more problem which I have encountered with CTS cheque clearance. As a society we get cheques from members which we deposit in Maharashtra State co-operative bank. We noted from our passbook that there was an entry on check return and deduction of the penalty amount, but without the check being actually returned to us, the cheque in subsequent entry showed to be cleared but the penalty amount not reversed to us. On enquiry with the bank,I was told that the payee bank had not cleared the amount due to bad image of cheque. Sending a bad image is a bank responsibility, why should the customer be charged.
Vaibhav Dhoka
8 years ago
Even after five weeks of introduction of CTS clearing Bank of Maharashtra is bibbest defaulter in giving services to customer.Pune city RM of Bank of Maharashtra Mr Shrivastav just gives assurances but never pass benefit to customers for its wrongdoing.
pradeep kumar
8 years ago
Sir, your argument is right on delay of clearing in CTS system. I like to remember you that every new system in India take some time to comply fully with instructions and procedures laid down by authorities. CTS is not exception, all indian banks have different platform for their softwares, A/c No. structure, payment settlement process, etc. Hence customer should aware about the technical hurdles to process CTS process. You are talking about employees performance, it is true upto some extent, but not fully agreed. although it is true in case of savings a/c customer for delay of interest, but what you say in case of customer's who use SB a/c chq for business purpose regularly?
So, remember Indian banks are also part of indian society and not an ALLAUDDIN CHIRAAG.
8 years ago
Can anyone send or post a copy of the circular giving extension of a day to those banks?

Are these available on public domain or are private to the canks.
Replied to Rahul comment 8 years ago
8 years ago
I'm currently facing same issue, I've had deposited a cheque (from Indusind Bank) in AXIS bank on 26th of April,2014 at 11AM and till this moment the amount is not credited to my account.

I've took several follow ups with Axis bank and they are saying that there is a problem from the Indusind bank and the worst thing is that their executive said that please wait for today and if your account is not credited then you can do whatever you want! (very pathetic)

I'm really worrying that whom should I contact to get this sorted out because its been 5 working days now and still a local cheque payment has not arrived.

Gajendra Purohit
gajendra(dot)[email protected]
Replied to Gajendra comment 8 years ago
Mr Gajendra should write a written complaint to both the banks asking them the 'Status' of his CQ. After receiving the replies, if he is not satisfied with the solution; claim suitable compensation from the guilty. If banks do not resolve, then he can lodge a formal complaint with the Ombudsman claiming due interest and compensation too.
8 years ago
the common man is again at the receiving end.who will bell the cat?
8 years ago
I remember the very first time I received an Income Tax refund. It happened, without pleading or a bribe, thanks to Yashwanth Sinha (BJP) doing his job for the people of India as a Finance Minister. The cheque came home. I never expected the ugly Government of India to ever pay the Indian Citizen the small mercy left over from its depredations.
Hemlata Mohan
8 years ago
I had issued a cheque on Bank of India to my SBI PPF a/c on 1st Feb but it was credited only on 9th Feb 2014, thereby causing a loss of interest to my PPF a/c and debit in my a/c at BOI- When contacted, SBI refused to do anything about it- How many complaints and how many heads to bang? Tired, Just tired!
Replied to Hemlata Mohan comment 8 years ago
Pl. file a complaint along with the reply recd. rom SBI to Banking Ombudsman for getting loss of interest plus compensation for mental torture.
8 years ago
Yes, certainly. The account holders who have lost interest for the delay can jolly well not only claim the lost interest, but may also claim compensation for any loss suffered due to bank's delay. Recently, in one case where the account holder had lost the allotment of equity shares due to such delay in clearing the CQ amount, we took up with Banking Ombudsman and got the due shares allotted at market rate for the sufferer.
Bosco Menezes
8 years ago
Sad but not surprising ... banks do everything to maximise profits at the cost of the retail . Another example imho would be buying shares through linked 3-in-1 accounts. On placing the order there is a "hold" put on the required funds. So the funds cannot be moved by the client, which is entirely correct. However, the funds are deducted from the account the same day or next, i.e. at least 1 day BEFORE the T+2 settlement date. So on weekends when there are no settlements the bank gets the funds for a few extra days. i feel that since the money is already "held" by the bank, there is no possibility of anything going wrong, and the bank could very well run their system in the early hours of the T+2 date. This way the client is not placed at a disadvantage.
Similarly if shares are sold & the money is due on a particular day (T+2) and a buy is placed on that day, the funds are adjusted automatically & do not reside in the savings account for even a single day even though they are due 2 days hence. These are small matters, but probably add up to HUGE savings for the bank.
8 years ago
I had issued HDFC Bank cheque on 2nd April for my PPF A/c. with SBI. Amount of 100000/- was debited on 3rd april & credit to PPF a/c. was given on 9th april and hence loosing interest for the whole month on PPF a/c.
Replied to raju comment 8 years ago
Mr Raju

Pl. first ask the concerned bank for the reason of delay. If not satisfied, complain to the banking ombudsman of your Region for loss of interest and claim .
If need be ,you may authorize the Consumer Complaints Cell to take up your case.
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