All about bank savings a/c interest rates!

Every individual has a Savings Bank account, but pays little attention to the interest earned on the balance in this account. Some people may not even know that the balance they maintain in their savings bank accounts earn an interest. In the past, before RBI had deregulated the savings bank interest rate regime, all banks were offering the same interest rate, which was 4% per annum. When RBI brought about changes in 2011, banks became free to decide the interest rate they wanted to pay on their savings bank accounts, depending on their liquidity and profitability preferences.

How is savings bank interest rates calculated?

Previously, the interest rate of 4% per annum was applied against the lowest balance available in the account between the 10^th and the final day of the month. This was seen as a very unfriendly method of calculation, as the depositor did not receive full benefits of the amount he maintains in his account. From April 2010 onwards, this changed and the savings bank interest is now calculated based on the daily balance method. This means that you will earn interest based on the closing balance you maintain every day, giving you the maximum benefits. For example, let’s say that your bank pays you an interest rate of 5% on your savings bank account. You have the following transactions during the month:

1^st of the month: Balance in the account is Rs. 3 lakhs

21^st of the month: Withdraw Rs. 1 lakh à Balance in the account is Rs. 2 lakhs

25^th of the month: Deposit Rs. 2 lakhs à Balance in the account is Rs. 4 lakhs

31^st of the month: Balance in the account is Rs. 4 lakhs

Your savings bank interest amount will be calculated at 5% on Rs. 3 lakhs for 20 days, Rs. 2 lakhs for 4 days, and Rs. 4 lakhs for 7 days, instead of the earlier method wherein the interest is calculated on the minimum balance of Rs. 2 lakhs.  Thus, you stand to earn more in the present times than what you might have earned in the past.

What has the de-regulated Savings Bank interest rate regime resulted in?De-regulating savings bank interest rates have definitely helped the customer to earn more interest, as competition for low cost savings bank accounts has led some banks to increase the interest rate offered. However, on the ground level, it is seen that not many banks have actually increased their rates beyond the 4% mark. For deposits below Rs. 1 lakh, IndusInd Bank, Kotak Mahindra Bank and Yes Bank offer higher rates at 5.5%, 5.5% and 6% per annum respectively, while for deposits above Rs. 1 lakh, these banks offer 6%, 6% and 7% per annum respectively in that order. However, majority of the banks, including the big banks like SBI, ICICI Bank and HDFC Bank have retained the savings bank rates at 4% per annum. This shows that savings bank interest rate may not be the sole determining factor of which bank you must hold your savings account with; other reasons like quality of service, familiarity with the bank, user-friendly interfaces etc. also play an important role. In the case of HDFC Bank, their low cost deposits as a proportion to total deposits are very high at 45%, giving it less incentive to offer high interest rates.

The increase in rates on Savings Bank accounts also results in higher interest rates on short term deposits offered by the banks. An increase in deposit rates will lead to a contraction in the net interest margins of the banks. As a result, to maintain margins, such banks will increase their lending rates, leading to costlier loans. Although an increase in lending rates is a factor of many conditions, increase in the interest of low cost deposits is an important factor.

The high rates on Savings Bank accounts quoted by a few banks can go down if the rates on fixed deposits also go down and if the general interest rate scenario is soft. As the threat of inflation continues and RBI has still not shown signs of reducing rates, the current scenario is expected to continue for some time.

Taxation of Savings Bank Interest rates:

Unlike interest on fixed deposits, interest earned on savings bank accounts is not subject to Tax Deduction at Source. However, this does not mean the interest earned on Savings accounts is completely tax free. It is exempt up to Rs. 10,000 in a year, and if the interest you earn from Savings accounts crosses this threshold, it becomes subject to tax.

Things to look out for before you shift your Savings Bank accounts based on the interest rate:

As mentioned earlier, only a few banks offer high interest rates. However, you need to consider a few factors before you jump to shift your account. Ascertain the minimum balance to be maintained and the account closing fees. Sometimes minimum balance can be waived off if a fixed deposit is opened with the bank. Also evaluate the service charges and various ancillary fees. After all, your Savings account should offer you a host of benefits, rather than simply earning you interest.

courtesy : http://www.bankbazaar.com

Caution points while taking a home loan!

Despite the growing popularity of home loans as the most convenient and financially smart way to get a dream house for your family there are many aspects which most of the borrowers never discuss with their bankers while taking the loan. Even the bankers do not disclose several hidden elements of the loan in fear of loosing customers. In the recent past the eligibility criteria has been relaxed to a great extent and the application process has been simplified to ensure more and more people are able to take advantage of the situation and aid boost the construction sector. Here are some of lesser known aspects that merit attention of the home loan applicant before signing the agreement.

The Amount: This is the biggest consideration that a prospective borrower must analyze for himself with great care. While the banker may be willing to give a higher amount considering the net worth of the property being purchased the borrower must make the calculation for himself so as to avoid landing up in repayment difficulties at a subsequent stage. Though banks will permit the EMI to be as high as 40% of the net monthly income after standard deductions it is prudent to keep the EMI below 25% of the net monthly income in order to cater for other avenues of investment and unforeseen circumstances.

Future Plans: there are many people who opt for a higher loan amount keeping in mind the increase in pay that they expect over the forthcoming years. However it must be understood that a home loan is a long term commitment for about two decades during which along with the income the expense and financial commitments will also grow substantially leaving the margin of money for home loan repayment at its present level. Additionally there is no guarantee of the pay hikes while the EMI amount is fixed the moment the loan is availed.

Interest Rate Changes: the bankers will never explain to the customer that even the fixed rate of interest is not completely fixed. There may be situations where this rate will be increased depending on the base rate fixed by the RBI which can result in substantial increase in the EMI which the borrower has to cater for while deciding the home loan amount. Failing to cater for such increases in the Emi midway through the repayment tenure may lead to severe financial crunch that may even result in defaulting on the loan servicing.

Thus planning right for the future without unnecessarily borrowing a bigger amount on offer for a home loan is a smart way of deciding the amount. The amount should always be such that one can comfortably pay the EMIs without having to cut down too much on the monthly family budget. 

How to increase your home loan eligibility!

While looking for the right home loan to buy a dream house one may come across a situation when the total amount that one is eligible for is insufficient. It is such situations that one needs to work out ways and means to increase the total eligible amount in order to be able to acquire the right home that one desires. There are several means which if combined can have a significant effect on this total eligible amount for home loans. With careful research and diligent planning one can easily increase his home loan eligibility.

§ Longer Tenure: The eligibility is calculated on the basis of repayment capacity of the applicant on a monthly basis. By increasing the tenure the EMI per Lakh of loan reduces and hence the applicant can now borrow more number of Lakhs with the same monthly repayment capacity. However increasing the tenure implies that one will ultimately end up repaying more as interest will be levied on a longer duration.

§ Clear Other Outstanding loans: Other outstanding loan liabilities of an individual drastically reduce his loan eligibility as the EMIs being paid towards those loans are deducted from the monthly repayment capacity. Thus repaying these loans from other sources will greatly move up the total amount for home loan. However this is only possible if the outstanding amount is within the reach of the individual. Up to 15 – 18 remaining EMIs is considered repayable under normal circumstances.

§ Combining Incomes: When it is apparent that the income of the individual is inadequate to get him a loan that he requires to buy a house then it is advisable to combine the incomes of other family members which will have a positive impact on his repayment capacity. In such cases the acceptable combining of incomes income include that of spouse, father, mother or children. The net increase in eligible amount can be many folds in such scenarios.

§ Opt for Step Up Loan: These are loan products that take into account the increase in incomes of individual over the period of loan repayment. This kind of a home loan has lower EMI in the initial stages which is increased in a step wise manner as the income of the burrower increases with time. Thus the total amount eligible is now calculated on the basis of a higher income that the current earnings which can increase the amount substantially. This a smart move for young professional who want to invest in properties right from the beginning of their earning career.

§ Include all perks: While applying one can include the various perks that the employer provides in addition to the basic salary as net income. This will have a positive impact on the repayment capacity thus increasing the eligible amount for home loan. These perks may include performance linked bonus or additional pay for overtime etc.

However when attempts to enhance the total amount that he is eligible for in taking a home loan there has to be a practical consideration of the actual repayment capacity. Availing a bigger loan to buy an expensive home may end up in creating tight financial conditions for individuals who hike up their eligibility falsely.

Home loan Document Checklist!

Home loans are easy to come by these days. So, don’t fret over it. Focus on the documents you need to furnish while applying for a home loan.

Documents required:

We give you a standard list of documents your bank will ask for. Besides this you need to submit details of the property or home you are obtaining the loan for.

Tip: Check with your Bank or Non-Banking Financial Companies to figure out which of the following documents you need to submit, as the requirements differ from bank to bank.

1. Identity proof
– Driving license
– Voters ID
– Passport
– PAN card
– Ration card
– Employee ID
– Bank passbook
– Letter from a recognized public authority or public servant verifying your photograph
– Confirmation letter from your employer or another bank verifying your photograph

2. Address proof
– Driving license
– Voters ID
– Passport
– Ration card
– Bank passbook or Bank account statement
– LIC policy/ receipt
– Utility bill – telephone, electricity, water, gas (less than 2 months old)
– Letter from any recognized public authority verifying residence address of the customer
– Letter from your employer

3. Age proof
– Driving license
– Passport
– Bank passbook
– PAN card
– Birth certificate
– 10th standard mark sheet
4.Income proof
Income proof and property proof vary for a salaried individual and a self-employed individual.

a. Self Employed/Businessmen
– A brief introduction of Business/Profession
– Balance Sheet, profit and loss account statement of income, proof of income tax returns for the last 3 years certified by a CA
– Photographs
– Receipts of advance tax payments if any made
– A photocopy of Registration Certificate of establishment under Shops and Establishments Act/Factories Act
– Registration Certificate for deduction of Profession Tax
– Certificate of Practice
– Receipts of Bank loans
– Proof of investments (FD Certificates, Shares, any other fixed asset)

b. Salaried individuals
– Income Proof (any one of the following):
Latest Pay slip
Form 16
Increment/Promotion letters
Appointment letter
Pay slip (Last 2 months) with salary account bank statement
Certified letter from Employer
IT returns ( for three years )
– Investment proof (FD certificates, shares, any fixed asset etc.)
– Documents supporting the financial background of the borrower (liabilities and assets if any)
– Photographs

5. Property documents

If a flat is purchased from a builder, you need the following property documents:
– Original copy of your agreement with the builder
– 7/12 extract – This is issued by the concerned land authorities giving details such as the survey numbers, area, date from which current owner is registered as owner etc.
– Property register card, which is obtained from the City Survey Department
– N.A. permission for the land from the collector, if its agricultural – If the land is agricultural and is being utilized for residential/ commercial/industrial use, then such agricultural land has to be converted to non-agricultural land and a Non-Agriculture Order has to be obtained from the Collector of the district where the property is located.
– Search Report and Title Certificate – A search report and title certificate can be obtained from an advocate who will conduct a survey of the title of the property by visiting the office of registrar. A legal opinion can avoid any legal hassles later and is mandatory to be filed with the agreement for sale.
– Development agreement between the owner of land and the builder
– Copy of order under the Urban land Ceiling Act
– Copy of building plans sanctioned by the competent authority
– Commencement certificate granted by the Corporation
– Building completion certificate
– Latest receipts for taxes paid towards the land or property or flat to be purchased
– Partnership deed or memorandum of association of the builders firm

If a flat is purchased from a Cooperative Society, you need the following property documents
– Original share certificate of the Society
– Allotment letter from the Society in your name
– Copy of the lease deed, if executed
– Certificate of the registration of the society
– Copy of the bye laws of the Society
– No objection certificate from the Society
– 7/12 extract or property register card in the Society’s name
– Copy of N.A permission for the land from the collector
– Search Report and Title Certificate
– Copy of order under the Urban Land Ceiling Act
– Copy of the building plans sanctioned by a competent authority
– Commencement certificate granted by Corporation
– The latest receipts of taxes paid for the property
– Original Agreement to assign / Deed of assignment

If you are constructing on your own land, then you will need the following property documents.
– Original sale deed of land and extract of Index II
– 7/12 extract or property register card in your name
– Copy of N.A. permission for land from the collector
– Search and title report
– Copy of tax paid under Urban Land Ceiling Act (obtained from Commissionerate of Urban Land Ceiling and Urban Land Tax)
– Copy of the building plans sanctioned by a competent authority
– Building permission granted by the Corporation
– The latest receipts of taxes paid for your land
– Estimate of the cost of construction certified by the architect

SEBI notice on Mutual Fund Investment

The Securities and Exchange Board of India (SEBI) has mandated various regulatory changes vide their Circular no. CIR/IMD/DF/21/2012 dated September 13, 2012 and SEBI (Mutual Funds) (Second Amendment) Regulations, 2012. This communication is intended to update you on these regulatory changes which you need to know as a mutual fund unit holder. These changes would be effective from October 1, 2012 (hereafter referred to as the “Effective Date”). We urge you to read and note the contents.


A. Fees and expenses

Investment Management & Advisory Fee: The AMC may charge the Scheme(s) with investment and advisory fees within the limits of total expenses prescribed under Regulation 52 of the SEBI (Mutual Funds) Regulations 1996.

Brokerage & transaction costs: Brokerage and transaction costs incurred for execution of trades and included in the cost of investment shall be charged to the Scheme(s) in addition to the limits on total expenses prescribed under Regulation 52(6). Currently, SEBI has prescribed that these expenses shall not exceed 0.12 per cent of the value of trades in case of cash market transactions and 0.05 per cent of the value of trades in case of derivatives transactions.

Service Tax on Fees & Expenses: Service Tax on investment and advisory fees shall be charged to the Scheme(s) in addition to the limits on total expenses prescribed under Regulation 52(6). Service Tax on expenses other than investment and advisory fees, if any, (including on brokerage and transaction costs on execution of trades) shall be borne by the Scheme(s) within the limits of total expenses prescribed under Regulation 52(6).

Additional expenses for geographical penetration: To improve the geographical reach of the Scheme(s) in smaller cities / towns, as may be specified by SEBI from time to time, expenses not exceeding 0.30 per cent of daily net assets may be charged to the Scheme(s), in addition to the limits on total expenses prescribed under Regulation 52(6) of the SEBI (MF) Regulations, subject to certain conditions. The amount so charged shall be utilized for distribution expenses incurred for bringing inflows from such cities. However, the amount incurred as expense on account of inflows from such cities shall be credited back to the Scheme(s) in case the said inflows are redeemed within a period of one year from the date of investment. Currently, SEBI has specified that the above additional expense may be charged for inflows from beyond ‘Top 15 cities’. Top 15 cities shall mean top 15 cities based on Association of Mutual Funds in India (AMFI) data on ‘AUM by Geography - Consolidated Data for Mutual Fund Industry’ as at the end of the previous financial year.

Additional expenses under Regulation 52 (6A)(c): Additional expenses, not exceeding 0.20 per cent of daily net assets, may be charged to the Scheme(s) towards Investment Management and Advisory Fees and the various sub-heads of recurring expenses mentioned under Regulation 52 (2) and (4) respectively, in addition to the limits on total expenses prescribed under Regulation 52(6).

Investor Education and Awareness initiatives: The AMC shall annually set apart at least 2 basis points (i.e. 0.02%) on daily net assets of the Scheme(s) within the limits of total expenses prescribed under Regulation 52, for investor education and awareness initiatives undertaken by the Fund.

Exit Load: All exit loads (net of service tax) charged, if any, from the Effective Date, shall be credited to the Scheme(s).

Thus, the total expenses of the Scheme(s) including the investment management and advisory fee shall not exceed the limits as specified under Regulation 52 of SEBI (MF) Regulations.

B. Single plan structure for schemes

Mutual funds/AMCs shall launch schemes under a single plan and ensure that all new investors are subject to single expense structure. Existing schemes with multiple plans based on the amount of investment (i.e. retail, institutional, super-institutional, etc) shall accept fresh subscriptions only under one plan. Other plans will continue till the existing investors remain invested in the plan. For details on the changes affecting our schemes/plans please read our addendum (see link below).

C. Harmonizing applicability of NAV across schemes

Under all Schemes (other than liquid schemes), in respect of applications for purchase / switch-in of units of an amount equal to or more than Rs. 2 lakh, the closing Net Asset Value (NAV) of the Business Day on which the funds are available for utilization shall be applicable provided that:

1. Application for purchase / switch-in is received before the applicable cut-off time.

2. Funds for the entire amount of subscription / purchase / switch-in as per the application are credited to the bank account of the respective schemes before the cut-off time.

3. The funds are available for utilization before the cut-off time without availing any credit facility whether intra-day or otherwise, by the respective scheme.

Where application is received after the cut-off time on a day but the funds are cleared on the same day, the closing NAV of the next Business Day shall be applicable. All multiple applications for investment (at the first holder’s PAN level) in a particular scheme (irrespective of the plan / option / sub-option) received on the same Business Day, will be aggregated to ascertain whether the total amount equals to Rs. 2 lakh or more and to determine the applicable NAV. For investments of an amount equal to or more than Rs. 2 lakh through systematic investment routes such as Systematic Investment Plans (SIP), Systematic Transfer Plans (STP), Flex STP, Swing STP, FLEXINDEX Plan, the units will be allotted as per the Closing NAV of the day on which the funds are available for utilization by the Target Scheme.

D. Prudential limits and disclosures on portfolio concentration risk in debt-oriented schemes

As specified by SEBI, the total exposure in a particular sector (excluding investments in Bank CDs, CBLO, Government Securities, T-Bills and AAA rated securities issued by Public Financial Institutions and Public Sector Banks) shall not exceed 30% of the net assets of debt scheme(s) of the Fund and this requirement shall be complied with on or before September 12, 2013.

E. Periodic disclosures

1. Scheme Portfolio:

Portfolio of the Schemes as on the last day of the month will be available on the website by 10th of the next month.

2. Half Yearly Financial Results:

Half Yearly Financial Results: Schemes un-audited half-early financial results will now only be available on the website within 1 month of close of half year ended March 31 and September 30 each year.

Investment avenues explained – The comparators!

Many a time people ask, “Tell me a good mutual fund?” This question is similar to asking a doctor, “Give me a good medicine?” How could the doctor suggest anything without knowing the problem?

Right Answer to Wrong Question

Though the question is wrong, immoral sales people take advantage of the gullibility and lack of knowledge of the person raising the question to sell their products. They cannot be taken to task as well, since they have in one way given the right answer. Problem is that the question is wrong.

Major investment decisions have been proven to be wrong leading to financial goals not being achieved by great margins. Imagine a father investing for his son’s engineering education for 18 years and falling short by 75% – where he needed 4 lakhs; he got 1 lakh!!!! The problem was with a mix-up with respect to the asset class. He was sold a pure debt investment when an equity based fund would have served him better.

The Questions

This article will cover most of the relevant methods to compare investments. The idea is to arm ourselves with the right questions so that we can get the right answers to achieve our financial goals.

The comparators used for financial investment tools analysis are not the same for all tools. So we will in this article see all the comparators and how they are suitable for different tools.

The Returns

Is the financial instrument / tool / investment that give the highest return the best one? No, Not necessarily!!!!! This is due to the fact that return has different components and their values depend on a number of other factors too.

There are two components to returns: Current Income and Capital Appreciation. Current income is the regular cash flow that we get from the investment. These are like interest from a bank deposit, dividend from a company or mutual fund, rent from a house or commercial building. This cash coming to us can be regular and a known quantity like a bank deposit and rent. In case of dividends the quantum of incoming cash and time when it will be paid out is not always known in advance.

Current income may be more important to some people than others. A regular known income is more needed for a pensioner than a fresher.

In most cases (except real estate, shares and some mutual funds) the investment itself will not grow in its value when there is a Current Income. The bank deposit of Rs.10 lakhs remains the same at the end of the term. Even in case of a cumulative deposit, the face value of the deposit is the same Rs.10 lakhs, the interest is the rest.

Current income is always taxed, either in our hands (in the case of interest) or in the hands of the person paying it (in the case of dividend).

Capital Appreciation

This is the growth in the value of the investment itself. The land that we had bought appreciates in its value itself. So does the share and the mutual fund bought with the “growth option”.

As with the current income, capital appreciation is preferred by some more than the others. A young person would want more of capital appreciation than a person nearing retirement. The issue with any investment that can give capital appreciation is that there can also be capital depreciation – reduction in value of the investment. So anyone with a firm short term commitment should look to preserve the capital than look for appreciation.

Risk

Risk is the deviation of actual returns from the expectation. So in one way the risk that we face from any investment depends on us (we are the ones who have the expectations). One of the measures of risk for an investment is its variation in returns from time to time (volatility). If the variation is high, the investment is said to be risky.

That way a bank deposit though giving lesser returns is less risky as it has lesser variation in returns. However the risk with bank deposits is the interest rate risk. This is so because after I made my investment for 5 years, the bank may increase the interest rate. Or the interest rate today is lower, so I am not able to reinvest gainfully.

The other risk is with the slowness of growth itself. What if the capital is preserved, but the growth is lesser then inflation. Here again we are losing the value or money. So there is no instrument that can be called RISK FREE. We need to choose an instrument based on our time frame and our ability to take the risk.

Liquidity

This is the speed at which an investment could be converted cash quickly. Gold has the highest liquidity as it can quickly be pledged for cash. Selling gold though may not be as easy. Shares have the next highest liquidity (2 days to cash in bank). Mutual funds come next (1 to 3 days for liquid or equity funds).

Real estate has the least liquidity among investments.

Tax treatment

A very important aspect to be considered when investing is the tax treatment. Some investments today in India still enjoy Exempt-Exempt-Exempt. This is basically getting favorable tax treatment at the time of investment, at the time there is income and also at the time of maturity. We are moving towards the Exempt-Exempt-Tax regime where investment maturity proceeds will be taxed. The first to come under the EET regime is our pension funds.

Convenience

This is the final measure for comparing investment. Convenience is a broad heading under which the ease of understanding the investment; ease for investment in quantum of money, frequency of payments; specialist support to manage the investment; ease of maintenance; etc, come up.

A mutual fund has very high convenience factor because investments can be as low as Rs.500 per month (even lower in some cases), has professionals who manage it, gives the advantage of diversification, can be redeemed very easily (except those with lock-in period). Real estate has the least convenience as it requires huge investments, and in India has to be managed by ourselves (only very recently do we have some professional support to manage real estate).

Summary

The article gives an overview of the different ways in which we can compare the investments. The objective is to ask the right questions to the sellers of products so that we get the right answers.

Extracts from : http://www.bankbazaar.com/

Cheques to be uniform across banks!

The Reserve Bank of India in the beginning of September 2012 has directed all banks in India to issue uniformed featured cheques which as per specifications of the Cheque Truncation System (CTS) 2010. This is with a view to standardize the procedures and provide a safeguard against frauds through uniform security features. The RBI also stated that this move would facilitate the fixed field placement specifications facilitate straight-through-processing at drawee banks’ end through the use of optical or image character recognition technology.

What is Cheque Truncation?

Cheque truncation is the process of stopping the flow of the physical cheque issued by a drawer at some point with the presenting bank en-route to the drawee bank branch. In its place an electronic image of the cheque is transmitted to the drawee branch by 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 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.

How the Cheque Truncation System has come about to be Implemented?

The Reserve Bank has implemented CTS in the National Capital Region (NCR), New Delhi and Chennai with effect from February 1, 2008 and September 24, 2011. After migration of the entire cheque volume from MICR system to CTS, the traditional MICR-based cheque processing has been discontinued in these two locations.. Based on the advantages realized by the stakeholders and the experienced gained from the roll-out in these centers, it has been decided to operationalise CTS across the country. Accordingly, Grid based CTS clearing has since then been started in in Chennai by including a few banks from Coimbatore and Bengaluru with effect from March 2012. It has also been envisaged to bring all the bank branches in the states of Tamilnadu, Kerala, Karnataka, Andhra Pradesh and the Union Territory of Puducherry under Chennai Grid in a phased manner.

What is New about this Approach to Implementation of the Truncation System?

Under this approach the entire cheque volume in the country cleared across numerous locations will be consolidated into a much fewer number of grids. The concept of region wise grids will be replaced and operational freedom will be given to the operator in deciding the number of grids required to expand the reach of CTS Pan-India and also on choosing the locations for each grid for optimum use of the resources. Each grid will provide processing and clearing services to all the banks under its jurisdiction. Banks, branches and customers based at small / remote locations falling under the jurisdiction of a grid would be benefited, irrespective of whether there exists at present a formal arrangement for cheque clearing or otherwise.

What are the benefits of such a System to Customers?

The basic purpose of RBI introducing this system is to help the customers better by:

§ Reducing the scope for clearing-related frauds or loss of instruments in transit.

§ Lowering of the cost of collection of cheques.

§ Removal of reconciliation-related and logistics-related problems.

§ Creation of the capability to enable inter-bank and customer payments online and in near-real time.

§ Superior verification and reconciliation process.

§ No geographical restrictions as to jurisdiction.

§ Operational efficiency for banks and customers alike.

§ Reduction in operational risk and risks associated with paper clearing.

What are the Cheques that can be presented through the CTS?

All types of cheques can be presented for clearing through CTS. It is in no way different from the use of traditional clearing infrastructure which has been used for clearing paper cheques. Cheques presented as part of Speed Clearing are handled in CTS as well. Incidentally, given the fact that images of cheques (and not the physical cheques) alone need to move in CTS, it is possible for the removal of the restriction of geographical jurisdiction normally associated with the paper cheque clearing. For reaping this benefit, the concept of Grid-CTS clearing is being envisaged as part of roll-out of CTS at Chennai. Under the grid clearing, cheques drawn on centers included in the grid will be cleared as part of local clearing.

What are the Changes for the Customers?

There is no change in the clearing process for customers who can continue to use cheques as at present, except to ensure the use of image-friendly-colored-inks while writing the cheques. Of course, such of those customers, who are used to receiving the paid instruments (like government departments) would also receive the cheque images. Cheques with alterations in material fields (explained in detail later) are not allowed to be processed under the CTS environment.

The RBI has made it mandatory for all banks in India switch over to this new system by 30^th September 2012 and ensure that all non-CTS-2010 standard cheques in circulation are withdrawn by 31^st December 2012.  This move shall usher a new era of banking with cheques in India.

Extracts from : http://www.bankbazaar.com