Diabetic retinopathy (DR) is a sight-threatening complication due to diabetes mellitus affecting the retina. The pathologies of DR can be monitored by analysing colour fundus images. However, the low and varied contrast between retinal vessels and the background in colour fundus images remains an impediment to visual analysis in analysing tiny retinal vessels and DR pathologies. To circumvent this problem, an invasive procedure called fundus fluorescein angiography (FFA) that improves the image contrast is used. A non-invasive digital image enhancement system that addresses the problem of the varied and low contrast colour fundus images has been developed to monitor and grade DR severity using digital colour fundus images. RETINO grades DR severity into five stages: No DR, mild nonproliferative DR (NPDR), moderate NPDR, severe NPDR and proliferative DR (PDR) by enhancing the quality of digital colour fundus image using RETICA in the macular region and analysing the enlargement of the foveal avascular zone (FAZ), a region devoid of retinal vessels in the macular region. RETICA uses two processes to enhance the varied and low contrast colour retinal fundus images. RETICA first normalizes varied contrast using an improved iterative Retinex, a method to separate the illumination from the reflectance part of the image and normalize the varied contrast. This is followed by separating the retinal pigments makeup, namely macular pigment, haemoglobin and melanin, using Independent Component Analysis (ICA). With RETICA, a contrast improvement factor of 5.389 is achieved, comparable to that of the invasive FFA at 5.796. RETICA is beneficial for the assessment of the retina-related eye diseases, such as DR through a direct observation or computerized medical diagnosis system. RETICA may be advantageous for retinal vasculature segmentation and determination of FAZ for grading of DR. This enhancement in contrast avoids the necessity of injecting contrasting agent into patients and allows DR screening by non-eye trained healthcare providers.