JAIIB PPB Paper-2 Module-A Unit 6: Operational Aspects Of Handling Clearing/ Collection/Cash

25/02/2023

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JAIIB Paper 2 (PPB) Module A Unit 6: Operational Aspects Of Handling Clearing/ Collection/Cash (New Syllabus)

The Institute of Indian Banking and Finance (IIBF) has recently revealed the revised syllabus and examination pattern for the JAIIB Exam 2023. The JAIIB 2023 will consist of four papers, with Paper 2 (Principles & Practices of Banking ) covering the crucial topic of “Unit 6: Operational Aspects Of Handling Clearing/ Collection/Cash.” It is essential for candidates to thoroughly understand this unit to perform well in the examination.

To assist candidates in comprehending the topic, we will provide all the necessary details related to Unit 6: Operational Aspects Of Handling Clearing/ Collection/Cash of JAIIB Paper 2 (PPB) Module A: General Banking Operations. We highly recommend that candidates refer to this article and make use of our Online Mock Test Series to enhance their knowledge of Operational Aspects Of Handling Clearing/ Collection/Cash.

Understanding each unit in the syllabus, especially the Marketing unit, is essential for JAIIB Certification Examination 2023 candidates. This unit plays a vital role in the banking industry, and thus, candidates must prepare well to excel in the exam and establish a successful career in the banking sector.

Cheque Truncation System (CTS)

RBI introduced Cheque Truncation System (CTS) for inter-bank clearance of cheques without their physical movement. The cheques are paid based on their electronic images. With suitable amendments to The Negotiable Instruments (NI) Act, 1881, The Information Technology (IT) Act, 2000 and The Bankers’ Book Evidence (BBE) Act, 1891, the legal framework for cheque truncation and e-chewues was put in place, in 2002. CTS was introduced with effect from February 1, 2008, and is now fully operational. The MICR-based cheque processing has been discontinued.

Characteristics of CTS

It is an electronic image of a paper cheque.
Only the banks involved and the Clearing House can truncate a cheque (i.e. create an electronic image of a cheque). The drawer/holder of a cheque cannot truncate a cheque.
The electronic image of the ‘cheque truncation’ substitutes the physical cheque from the point and time of truncation onwards.
Truncation is done only during the course of a clearing cycle to reduce the time taken for realisation.
The paper cheque, after truncation, is kept in the custody of the bank/clearing house that truncated the cheque.
The addition of the digital signature of the truncating bank/Clearing House to the electronic image of the cheque truncation is optional.

Advantages Of Cheque Truncation System (CTS)

The CTS benefits banks. Furthermore, it has changed the cheque clearance method in a way to save the time and effort of the employees in the bank.

Customer Service – It enhances the customer experience.
Operational Benefit – The process is faster and more advanced.
Commercial Benefit – Low expenditure of resources on clerical work and stationery.
Provides Fraud Prevention Mechanism – Secure method, preventing fraud.

Approach to CTS

The CTS is operated on a Grid basis, dividing the country in three Grids viz. Northern, Western and Southern, each having a separate Clearing House (CH) located at Delhi, Mumbai and Chennai respectively. Cheques pertaining to all cities/ centres in a Grid are presented to the respective Clearing House, through a service branch of the bank. There can be three types of participants:

Member banks of the Clearing House.
Sub Member banks who will participate through members
Indirect members who can participate for submission of data and images through a Member bank but will maintain a separate settlement

Stepwise Process Involved in Clearing Cheques using CTS:

Step 1: First, an electronic image of the cheque is captured by the presenting bank (collecting bank) through a ‘Capture System’
Step 2: The presenting bank then sends this data in an encrypted format to the ‘Clearing House’, from where it will be sent to the paying bank
Step 3: The cheque-related data is transmitted between the collecting and paying bank through a Clearing House Interface, which is sort of a gateway.
Step 4: The next step is ‘Presentation Clearing’, which involves the process of data reading. After which, the data will be sent to the concerned paying bank
Step 5: Once the paying bank gets the all the images and data through the clearing house, the payment is processed

Background This new system of cheque clearing was first introduced on a pilot basis by the RBI in New Delhi on February 1, 2008. CTS was then launched in 2011 in Chennai. It was then launched as a nation-wide system from August 1, 2013 after the various benefits of the scheme were analysed.

On the whole, CTS is a more secure, fast and organised approach to clearing cheques in the country.

Use of CTS 2010 cheques

In order to avoid any fraud, it is advisable that CTS 10 cheques are used. The following are the features of CTS 2010 cheques:

These types of cheques are very image friendly
In-built with more security features
The IFSC Code is generally printed on the top of the cheque leaf
Quality of paper will be maintained
The bank’s logo will ideally be in a type of invisible ink

Precautions Customers have to take while using CTS 2010 Cheques

Customers should ideally request their banks to use only CTS 2010 cheques
Use pens that are made of suitable image-friendly ink for clear and error-free reading
Avoid overwriting on cheques
Use a new cheque leaf instead of making alternation on a cheque leaf

As far as customers are concerned, there will be no big change in the way they have been issuing or using cheques. The only thing that customers need to keep in mind is to use an ink that is compatible with the image recognition tool.

CTS – Positive Pay System

Banks have been informing customers about making mandatory, the positive pay system, a process of reconfirming the key details of high-value cheques.

The Reserve Bank of India (RBI) had issued guidelines for banks to implement this system from January 1, 2021, to safeguard against cheque frauds. Here is all you need to know:

What is the Positive Pay System?

The Positive Pay System, developed by the National Payments Corporation of India, is a process of reconfirming the key details of large value cheques. Under this system, a person issuing the high-value cheque submits certain essential details of that cheque like date, name of the beneficiary/payee amount etc. to the drawee bank. The details can be submitted through electronic means such sas SMS, mobile app, internet banking, ATM etc. The details are cross-checked while issuing the cheque and any discrepancy is flagged.

What is the limit on the amount for the system?

RBI has told banks to enable the facility for all account holders issuing cheques for amounts of ₹50,000 and above. It has also said that while availing of the facility is at the discretion of the account holder, banks may consider making it mandatory in case of cheque values of ₹5 lakh and above.

RBI Guidelines on Collection of Instruments

Formulating Cheque Collection Policies:

Banks are required to formulate policies regarding immediate credit of local/outstation cheques, time frame for collection of local/outstation instruments and interest payment for delayed collection.
Banks have been advised to reframe their Cheque Collection Policies (CCP) to include compensation payable for the delay in the collection of local cheques as well. well.
In case, no rate is specified in the CCP for delay in realisation of local cheques, compensation at SB interest rate should be paid for the corresponding period of delay.

Collection Of Account Payee Cheques

RBI has prohibited the banks from crediting an ‘account payee’ cheque to the account of any person other than the payee named therein.
Account payee cheques deposited with the sub-member for credit to their customers’ account can be collected by the sponsor member bank of the Clearing House.
RBI has advised that banks may consider collecting account payee cheques drawn for an amount not exceeding Rs.50,000/- to the accounts of co-operative credit societies, if the payees are the constituents of such co-operative credit societies.

Payment of Cheques/ Drafts/ Pay Orders/ Banker’s Cheques

The RBI has reduced the validity of these instruments to three months, effective from April 1, 2012 in exercise of powers conferred by Sec. 35A of the BR Act, 1949.

Cheques/ Instruments Lost in Transit at Paying Bank’s Branch

The onus of such loss lies with the collecting banker and not the account holder. The collecting banker should have a right to recover the amount reimbursed to the customer from the paying bank.

Bills for Collection

Bills for collection including bills discounted required to be collected through another bank at the realising centre should be forwarded directly by the forwarding office to the realising office.

Payment of Interest for Delays in Collection of Bills

The lodger’s bank should pay interest to the lodger for the delayed period in respect of collection of bills at the rate of 2% p.a. above the rate of interest payable on balances of SB accounts.

Cash and Its Custody

General

The Cash and Small Coin Balances must be kept in the Strong Room in the joint custody of the Head Cashier/Cashier and the Manager put in charge of joint custody.
In case of Currency-Chest branches, the currency chest has to be maintained under joint custody of two designated Officers-in-charge.

Strong Room/ Safe

The Strong Room or Safe must be under the dual custody of the Head Cashier/Cash Officer and the Manager in charge of cash.
Both officials must be present when the Strong Room/Safe is opened.
For currency- chest branches, the custody of the currency chest will remain with two designated Officers-in-Charge.

Cash Balance of the Bank

The bulk of the Cash Balance should always be in the Strong Room/Safe under joint custody, while the remainder (Cashier’s Hand Balance) will be left with the Head Cashier/Cashier during the day for the day’s transactions.
The Supervising official will personally count all notes of denominations above Rs. 100/- and will verify a portion of all other notes based on the ‘clip system’.
Banks are required to sort the notes into three categories Issuable, Soiled and Mutilated.
The Supervising Official will verify at the close of the working day that the ‘Joint Custody Balance’ corresponds exactly with the entries in the Cash Balance Book and will also invariably check the entire Cash Officer’s hand balance of loose notes and also check the loose packets in Hand Balance and initial against the items checked in the Cash Balance Book.
Before the Strong room is closed, the Supervising Official, Head Cashier/Cash Officer/Cashier should check the bundles kept in the vault and verify the same with the Reserve Cash Register. This is called as ‘gross check’.

Shortage or Excess in Cash

Any shortage is recovered on the same day from the Cash Officer/ Head Cashier/Cashier.
Failing recovery on the same day, the amount of shortage should be debited to the Suspense Account taking the signatures of the staff responsible for the shortage on the reverse of the voucher under report to the Head Office and adjusted on recovery from them.
Any excess in the Cash Balance must be credited to Sundry Deposit Account on the same day itself.

Remittance of Cash

Cash remittances sent from one office to another should always be entrusted to authorised employees.

Night journeys and unusual halts at junctions mid-way should be avoided.
The remittance box should always be transported in the van provided by the bank.
The box should be securely chained and locked to a staple or other fixed object in the van in which the remittance is carried.
A Register should be maintained to record all cash remittances to and from branches.

Cash Replenishment at ATMs

Keeping the ATM machines filled with adequate amount of cash is important to avoid cash-out situations and to maintain uninterrupted service to the customers. Also, large unutilized cash stock should not remain at any ATM.
Each bank has its own cash replenishment policy. Also, a security manual describes the security measures required when replenishing cash in the ATMs.

Insurance

All cash remittances in transit are covered under the Blanket Insurance Policy obtained by the bank.
It must be ensured that the maximum limit laid down therein for any one carriage is not exceeded under any circumstances.
Cash in safe and on the counter should be kept within insured limit as directed by Head Office from time to time.
Care should be taken to ensure that no excess cash over the insured limit is kept.

Custody of Keys

Particulars of all important keys, including those of the Cash Officer/Head Cashier/Cashier, must be entered in the Key Register containing the details of all keys (both originals and duplicates) that are in use at the branch, and with whom are they held.
The main keys of the branch shall on no account leave the possession of the officials under whose charge these have been entrusted except as specified by the bank or in the case of incapacitation for duty when taken over by another bank official as directed by the controlling Office. Grave consequences due to slackness in this should be strongly impressed on concerned officials.
In case of safes previously handled by unauthorized officials the levers of the locks should be changed.
Any important key showing signs of serious wear should be informed to the Head Office and a new lock may be ordered.
No important key pertaining to cash counters, safes, lockers, strong rooms, almirahs, main entrance may be made and no repairs to such locks be carried out without the prior permission of Head Office.
All repairs must be carried out under the personal supervision of the Manager and the Cash Officer/ Head Cashier/Cashier having joint control over the Strong Room or safe.
Whenever a lock is changed or the levers of locks changed, it must be noted in the Key register.

Duplicate Keys:

Banks must follow the instructions as mentioned below with regard to the Duplicate Keys:

The officials holding the keys of the Strong Room/ Safe room and safes/cupboards containing cash, gold ornaments under pledge to the bank and other securities, will pack their duplicate keys individually in a strong cloth lined envelope which will be sealed by them with their seals.
The sealed packets must be placed in a strong wooden or tin box locked or otherwise secured and wrapped in water-proof cloth.
The box of duplicate keys should be kept in safe custody with another local branch of the same bank, or of another bank. The instructions for safe custody should be signed by the Manager/Cashier or the Supervising Official whose keys are deposited therein.
The instructions for delivery should also be conveyed to the branch of the bank holding the box in safe custody by means of a letter signed by all the officials holding the keys.