SGAGSDH

RBI Vision Document
2005-2008
Harshul Kumar
Mission Statement:
‘Triple-S + E’ principle
Safety will relate to addressing risk, so as to make the systems risk free or
with minimal risk
Security will address the issues relating to confidence, with specific reference
to the users of these systems
Soundness will be aimed at ensuring that the systems are built on strong
edifices and that they stand the test of time, All the systems are required to be
on sound footing, with adequate legal backing, firm operational procedures
and transparency norms.
Efficiency will represent the measures aimed at efficiencies in terms of costs
so as to provide optimal and cost effective solutions.
Goals:
The payment system policy goals will continue to be “to foster a safe, secure,
sound and efficient payment systems for the country”. Keeping this in view, for
the period 2005-08, the focus will be on the following major themes:
I . A new institutional structure for retail payment systems
ii. National Settlement System
iii. Sound legal base
iv. Continuation of risk mitigation efforts
v. Efficiency enhancements
vi. Rural Sector facilitation
vii. Customer facilitation and protection
A new institutional structure for retail payment systems
 Due to multiplicity of operators, local practices which vary from place to place, determine
the conduct of clearing and settlement and important aspects like safety, efficiency and
customer service are often compromised for operational convenience. This limits the
scope of product innovation in payment services.
 the Indian Retail Clearing function, in its entirety, could be entrusted to a separate legal
entity at national level and Reserve Bank can provide settlement services for all the
clearing systems, besides being the regulator and supervisor of the payment systems.
The broad framework of the new national entity
 This envisioned national entity would be a limited company owned and operated by banks. Indian
Banks Association will discuss with a few leading banks and develop consensus on the ownership
pattern. Since a few banks have already been running MICR Cheque Processing Centres (MICR
CPCs) with substantial investment, they may be consulted for the purpose.
 The details regarding staffing, ownership of existing infrastructure etc., may have to be worked
out.
 All retail clearing operations, both paper-based and electronic will be managed and operated by
this limited company.
 The new organization would provide a robust technologically intensive centralized system
offering ECS, EFT and SEFT (or NEFT) Services covering the entire country. It may also take
initiatives on ATM-switching, multi-application smart card, e-commerce and m-commerce based
payment systems.
 The new entity would bring about efficiency enhancements and uniformity in the existing
payment products and develop new products taking advantage of technology innovation.
 Existing MICR centres would be converted into cheque truncation based clearing centres. It would
also introduce cheque truncation based inter-city clearing paving the way for T+1 (or even T+0)
cheque clearing for the whole country.
The advantage of setting up of the national entity on these lines for running all retail payment
system activities will be that this entity will have uniformity in the structure, operations and
procedures. The disparate local practices which impede efficiency and customer service in the
functioning of the clearing operations would be effectively neutralized. This single entity would
deploy professionally skilled and competent personnel to manage and run clearing operations. It
will create an enabling environment for bringing out innovative products. It will pave the way
for conducting all clearing at national level, leading to better information dissemination and
better customer education on various payment services and systems.
Action Point: 1. Setting up of an institution at the national level which will own and operate
all retail payment systems of the country.
National Settlement System (NSS)
The issue:
 Large Value payment systems like RTGS, G-Sec and Forex Clearing settled in the
books of RBI at Mumbai. With regard to retail clearings taking place at 1050 clearing
houses spread all over the country, the settlement is done in the account of the
settlement bank at each clearing centre separately.
 Settlement of payments in India causes liquidity burden for banks because they
couldn’t use excess liquidity of one Local clearing house to another Clearing house to
for deficit. A National Settlement System is proposed to centralize clearing at
Mumbai and aid liquidity management using technology-based solutions for banks
with regional presence
Action:
Reserve Bank to establish a National Settlement System through which the clearing
houses/ clearing organisations can settle the net position of the participating banks at the
national level.
Legal framework for payment and settlement systems
1. The Payment and Settlement Systems Bill to be enacted

2. Regulations for authorised payment and settlement systems to be framed
3. Finalisation of EFT Regulations
4. Initiating the process of legislation for credit transfer transactions
5. Drafting Regulations for ECS(Debit Clearing)
Risk Mitigation in Payment Systems
 Payment Systems face various risks like credit, liquidity, legal, operational and
settlement risks.
Action Points:
To address Systemic Risks:
1. Interbank transactions at all places to be migrated to RTGS System
2. High Value Clearing Systems to be made secured netting systems by introduction
of guarantee funds
To address Liquidity Risks:
2. Implementation of National Settlement System for posting the net position of
the clearing participants in all clearing houses in the country.
To address Operational and Legal Risks:
3. For enhanced security of messages, PKI based digital signatures to be
introduced.
4. Credit transfers to be encouraged and in electronic mode
5. Provide for high availability of all systems
Efficiency Enhancements
Action Points:
1. Implementation of Image Based Cheque Truncation Clearing at major centres ( New Delhi,
Mumbai, Chennai, Kolkata, Bangalore and Hyderabad) which would in due course lead to National
Cheque Truncation System ( National CTS)
2. Rationalisation of Clearing Operations by setting up new Clearing Houses, expansion of
geographical jurisdiction of the Clearing Houses, merger and amalgamation Clearing Houses, etc.
3. MICRisation of every cheque – every cheque issued to follow MICR standards
4. All Payment and Settlement Services to be available on a national level- National ECS, National
EFT and National CTS
5. Encouragement, facilitation and removal of impediments for the introduction of innovative products
for banks, customers and Government- e.g. e-purse, integration of SWIFT and SFMS, straight through
processing capabilities from the customer end itself
6. Enhancing the efficiency of Systemically Important Payment systems i.e by increased usage of
RTGS system
7. Creating off-city back-up arrangements for large value national payment systems like RTGS system
and G-Sec Clearing and revamping the present arrangement of on-site backup by way of two data
centres (primary and hot standby)
Rural Sector Facilitation
Action Points:
1. Improve the availability and coverage of the new delivery channels. This will be in the form
of extension of facilities such as the Automated Teller Machines for cash payments.
2. Facilitate large scale deployment and use of multi application smart cards which would also
be used for storage and transfer of small value payments in electronic mode. This would be
achieved by means of introduction of easy to use, small and cost effective hand held devices for
transfer of value between cards in a secure manner.
3. Increase the reach of electronic modes of funds transfer at rural areas by providing variations
of such modes, but with a rural bias. The proposed NEFT system would be modified such that
the nonnetworked branches in rural areas can access the NEFT branches of banks for transfer of
funds.
4. Increasing the reach of payment services by means of tie up and collaboration with other
large coverage entities such as the Post Offices.
5. Providing support for new modes of traditional facilities such as ATM based Kisan cards.
Customer Facilitation and Protection
Action Points:
1. Setting up Customer Facilitation Centre (CFC) by each payment service provider (RBI will set up an
integrated CFC for RTGS, G-Sec, MICR Clearing, ECS and EFT systems operated by RBI)
2. Each payment service provider to disclose publicly its standards, terms and conditions under which the
payment will be effected and also compensation policy and procedure for any deficiency in services
3. The Reserve Bank, the Indian Banks Association and the banks to undertake Customer Education efforts with
regard to features and risks and liabilities of various payment services including electronic payment products,
new products and services.
Other initiatives
1. Publication of Red Book on Payment Systems for a country by the Bank for International
Settlements (BIS) helps documentation of all payment systems in a country in a structured
format.
2. Government payments and receipts to be facilitated through electronic mode. RBI will
participate in the E-Governance initiatives in a proactive manner.

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RBI Vision Document

1. The Payment and Settlement Systems Bill to be enacted

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