Soon after I wrote Cheque Truncation System or Contract Termination System, a senior banker averred to me in private that India’s cheque truncation program had a lot of loose ends. A friend of mine who used to work for a CTS solutions provider pointed out that the program had an ever greater impact on NBFCs than banks (For the uninitiated, a Non Banking Financial Company is a type of financial institution in India that can make loans and offer a few other financial products without holding a banking license). To paraphrase this CTS professional’s comment, banks and NBFCs together handle around 2 million PDCs a month on the conservative side, which translates to an annual volume of 24 million. Since PDCs are customarily collected for three years in advance, there are 72 million cheques waiting to be sucked out of the system and replaced with CTS 2010 compliant cheques. Given that the cost of processing a PDC is around 2.5X of that of a normal cheque, “reprocessing loans with new CTS2010 compliant PDCs would mean a significant cost for banks / NBFCs”, my friend remarked on my company’s blog.
Since the above post was published around six weeks ago, the CTS2010 cutover deadline has been extended by three months to 31 March 2013. While I’m no banker or NBFC specialist, I strongly doubt whether all the prerequisites for this migration would be completed even by the revised deadline, and predict a further delay of at least three months before the exercise is deemed complete and old cheques lose their validity.
Getting down to mundane personal matters, I called my tenant and requested him to issue new CTS2010 PDCs for the two year lease he has taken on my house. A couple of weeks later, he called me over to exchange the old non-CTS2010 cheques for the new ones. Even as I was receiving them, I noticed that the new cheques didn’t have a “pantograph” – yes, I had to look up what term meant – and lacked at least two more attributes that banks had said that CTS2010-compliant cheques should exhibit. When I wondered aloud whether the new cheques he was giving me were CTS2010-compliant, my tenant assured me that his bank had issued the new cheque book against his explicit request for CTS2010 compliant cheques. That confirmation, combined with the implicit trust my tenant and I enjoy with each other, persuaded me to treat this matter as closed.
But, going back to a generic context, what’d happen if someone with malafide intent deliberately tried to palm off old cheques as new, as Advait Rege pointed out in his comment to my Finextra post? People entering into contracts with them would be left high-and-dry when the old, non CTS2010-compliant PDCs in their possession would eventually start bouncing when the CTS2010 cutover finally happened. The one way they could safeguard against the risk of being defrauded is by confirming that they got CTS2010-compliant cheques at the time of entering into the agreement. This calls for a simple, yet foolproof, way by which an average bank customer can ensure that a given cheque is CTS2010-compliant. Watermarks, pantographs and obtuse things like that simply don’t work for this purpose.
Maybe the text “CTS2010” printed inconspicuously on the left margin of new cheques is one such marker?
I stumbled upon this text when I’d closely inspected the new cheques issued by my tenant. I subsequently studied several new and old cheques of a few more banks and found that the marker text was present on all cheques otherwise known to adhere to the CTS2010 standard – even if they lacked the “pantograph” – and absent from all old cheques that were non-compliant. While I haven’t seen the cheques of scores of other banks, the result of my little experiment got me wondering if this marker alone could serve the purpose of establishing whether a cheque was CTS2010-compliant or not.
Regardless of the ubiquity or otherwise of the CTS2010 marker, I wish the banking industry and / or the regulator had created a logo for the nation’s cheque truncation program instead of using “spot the six differences” style of communications with their customers. By printing this logo prominently on all new cheques, banks could’ve removed much of the anxiety caused to account holders by the CTS2010 cutover rather than asking them to decipher things like “pantograph”.
In a broader context, this is yet another example of how banks and financial institutions could eliminate friction from their processes and thereby accelerate adoption of their products and services by the mainstream market.