Operational Aspects of Cash/Clearing: Jaiib/DBF Paper 2 (Module D) Unit-4

Operational Aspects of Cash/Clearing: Jaiib/DBF Paper 2 (Module D) Unit-4

Dear bankers,

As we all know that  is Operational Aspects of Cash/Clearing for JAIIB Exam. JAIIB exam conducted twice in a year. So, here we are providing the Operational Aspects of Cash/Clearing (Unit-4), Banking Operations and Accounting Functions (Module D), Accounting Finance for Bankers-Paper 2.

♦Implementation of Cheque Truncation system (CTS)

What is Cheque Truncation?

  • Truncation is the process of stopping the flow of the physical cheque issued by a drawer at some point by the presenting bank en-route to the paying bank branch. In its place an electronic image of the cheque is transmitted to the paying branch through the clearing house, along with relevant information like data on the MICR band, date of presentation, presenting bank, etc.
  • Cheque truncation thus obviates the need to move the physical instruments across bank branches, other than in exceptional circumstances for clearing purposes. This effectively eliminates the associated cost of movement of the physical cheques, reduces the time required for their collection and brings elegance to the entire activity of cheque processing.

What is the status of CTS implementation in the country?

  • CTS has been implemented in New Delhi, Chennai and Mumbai with effect from February 1, 2008, September 24, 2011 and April 27, 2013 respectively. After migration of the entire cheque volume from MICR system to CTS, the traditional MICR-based cheque processing has been discontinued across the country.

 What is the new approach to CTS implementation in the country?

  • The new approach envisioned as part of the national roll-out is the grid-based approach. Under this approach the entire cheque volume in the country which was earlier cleared through 66 MICR Cheque Processing locations is consolidated into the three grids in New Delhi, Chennai and Mumbai.

CTS-2010 standard

  • Accordingly, certain benchmarks towards achieving standardisation of cheques issued by banks across the country have been prescribed like – quality of paper, watermark, bank’s logo in invisible ink, void pantograph, etc., and standardisation of field placements on cheques. The benchmark prescriptions are collectively known as “CTS-2010 standard”.

♦RBI Guidelines on collection of Cheques

Local Cheques

  • Local cheques are payable within the jurisdiction of the clearing house and will be presented through the clearing system prevailing at the centre. Credit arising out of local cheques shall be given to the customer’s account as indicated in the Cheque Collection Policy (CCP) of the concerned collecting bank.
  • Notwithstanding to the CCP of concerned collecting bank, ideally, in respect of local clearing, banks shall permit usage of the shadow credit afforded to the customers’ accounts immediately after closure of the relative return clearing on the next working day or maximum within an hour of commencement of business on the third working day from the day of presentation in clearing, subject to usual safeguards.
  • Under grid-based Cheque Truncation System clearing, all cheques drawn on bank branches falling within in the grid jurisdiction are treated and cleared as local cheques. The grid clearing allows banks to present/ receive cheques to/ from multiple cities to a single clearing house through their service branches in the grid location.
  • If there is any delay in credit, beyond the period specified above, customer is entitled to receive compensation at the rate specified in the CCP of the concerned collecting bank. In case, no rate is specified in the CCP for delay in realisation of local cheques, compensation at savings bank interest rate has to be paid for the corresponding period of delay.

Outstation Cheques

  • Maximum timeframe for collection of cheques drawn on state capitals/major cities/other locations are 7/10/14 days respectively.
  • If there is any delay in collection beyond this period, customer is entitled to receive compensation at the rate specified in the Cheque Collection Policy (CCP) of the concerned bank. In case the rate is not specified in the CCP, interest rate on Fixed Deposits for the corresponding maturity to be paid. Banks’ cheque collection policy also indicates the limit up to which outstation cheques are given immediate/instant credit.

What happens if cheques / instruments are lost in transit / in clearing process?

  • If cheques are lost in transit or in the clearing process or at the paying bank’s branch under physical instrument delivery clearing, the bank should immediately bring the same to the notice of the presenting customer (beneficiary)’s notice so that the customer can inform the drawer to record stop payment and can also take care that other cheques issued anticipating the credit arising out of the lost cheque are not dishonoured due to non-credit of the amount of the lost cheques / instruments.
  • It may however be noted that the probability of losing the physical instrument in the hands of paying bank is remote in the locations covered by CTS as clearing is undertaken on the basis of images.If the instrument is lost after lodging with the collecting bank but before truncating the same for sending through image based clearing, the presenting bank should follow the procedure indicated above.
  • The customer is entitled to be reimbursed by banks for related expenses for obtaining duplicate instruments and also interest for reasonable delays in obtaining the same.

♦Cash and Its Custody

(1)General

  • The cash and small coin balances must be kept in the string room in the joint custody of the Head Cashier/cashier and authorized supervising official.

(2)Strong Room/ Safe

  • The strong room or Safe must be under the the double lock of the cashier and the supervising official in charge of cash.

(3)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 hand balance) which will be kept as low as conveniently possible, will be left with the Head Cashier/ Cashier during the day for the day’s transactions.

(4) Checking of Cash Balance

Before taking notes and coins into “Joint Custody”, the supervising official will :

  • Personally count all notes of denominations above Rs. 10.
  • Count all other notes on the “clip system”.
  • Have all bags of coins weighed in his presence.
  • Take and count few pieces and leave the reminder to be counted in his presence on the “clip system”.
  • Invariably check the entire Head Cashier’s/Cashier’s hand balance of loose notes.
  • Assure that Head Cashier’s/Cashier’s hand balance are kept in the cash box and locked in his presence.

(5)Shortage or Excess in Cash

  • Any shortage in the cash balance should be recovered on the same day from the Head Cashier/Cashier.
  • Failing recovery on the same day, the amount of shortage should be debited to Suspense Account taking the signatures of the members responsible under report to the Head Office.
  • Head Cashier/Cashier is responsible for any shortage either in Hand or Vault Balance.
  • Cashiers signed the Denomination Slips will be responsible for any shortage in book of notes.
  • Any excess in the Cash Balance must be credited to Sundry Creditors Account on the same day.

(6)Remittance of Cash

When remittances of currency notes are sent from one office to another, following instructions must be strictly complied with :

  • Should not be allowed to be carried without and armed guard.
  • Always entrusted to an authorised employee with experienced subordinate staff and armed guard.
  • Night journeys and unusual halts at junctions should be avoided.
  • Remittance box should always be conveyed in the van provided.
  • The box should be securely chained and locked.
  • A register should be maintained to record all cash remittances.

(7)Insurance

  • All cash remittance in transit are covered under the Blanket Insurance Policy obtained by the Bank.

(8) Custody of Keys:

  • Particulars of all Important keys, including those of the Head Cashier/ Cashier, must be entered in the Key Register. The Register Should show what originals and duplicates exists and where they are to be found and must be initialed by every incoming Manager.

(9)Security Measures

  • The security Measures as advised by the Head Office in respect of security guards deployed and use of alarm system etc.

♦Clearing Operations

Pre-requisites for sending cheques for clearing

  • All the instruments presented through the clearing should bear the “Clearing” stamp with Bank and Branch and date.
  • Bank crossing stamp with MICR code.
  • Verify the name of the payee and on pay-in-slip which should be one and the same.
  • Verify the amount on the cheque and on pay-in-slip which should be one and the same.
  • Cheques with a/c payee crossing must be collected to the payee a/c only.
  • Send the unpaid Return Cheques through the branch courier to reach the clearing branch before stipulated time.
  • Inward clearing cheques
  • Outward clearing cheques
  • High Value clearing
  • Electronic Clearing System (ECS)
  • Clearing House Account Reconciliation
  • Balancing of Clearing House Account

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