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Payment and settlement systems (highest policy making body (Board for…
Payment and settlement systems
3 types of instruments
Paper based
cheques, drafts, and the like
60% of the volume of total non-cash transactions
In value term 11% - dec over time
Initiatives
Magnetic Ink Character Recognition (MICR)
for speeding up and bringing in efficiency in processing of cheques
High Value Clearing
for clearing cheques of value Rupees one lakh and above
Speed Clearing
local clearance of outstation cheques drawn on core-banking enabled branches of banks
cheque truncation (CTS) system
To restrict physical movement of cheques and enable use of images for payment processing
CTS-2010 Standards (for enhancing the security features on cheque forms)
Strategy
reduce the use of paper for transactions
both for local and outstation clearance of cheques
Electronic
Electronic Clearing Service (ECS) Credit
Introduced in 1990s
to handle bulk and repetitive payment requirements (like salary, interest, dividend payments) of corporates and other institutions
customer accounts to be credited on the specified value date
National Electronic Clearing Service (NECS)
Launched in 2008
at National Clearing Cell (NCC), Mumbai
facilitates multiple credits to beneficiary accounts with destination branches across the country against a single debit of the account of the sponsor bank
leverages on Core Banking Solutions (CBS) of member banks
Regional ECS (RECS)
2009
miniature of the NECS
confined to the bank branches within the jurisdiction of a Regional office of RBI
sponsor bank will upload the validated credit/debit instructions through the Secured Web Server of RBI to the customers
Customers should be of CBS enabled bank branches spread across the Jurisdiction of the Regional office of RBI
RECS centre processes data
leverages CBS
Presently RECS is available in Ahmedabad, Bengaluru, Chennai and Kolkata
Electronic Clearing Service (ECS) Debit
for faster method of effecting periodic and repetitive collections of utility companies
ECS Debit mandates bank branches to debit their accounts and pass on the money to the companies
no limit as to the minimum or maximum amount of payment
Available across major cities
Electronic Funds Transfer (EFT)
retail funds transfer system introduced in the late 1990s
account to account transfer electronically
Available across 15 major centers in the country
system is no longer available for use by the general public - replaced by NEFT - more features
National Electronic Funds Transfer (NEFT) System
2005
more secure system for one-to-one funds transfer requirements of individuals / corporates
Available across a longer time window, the NEFT system provides for batch settlements at hourly intervals, thus enabling near real-time transfer of funds
unique features
accepting cash for originating transactions
initiating transfer requests without any minimum or maximum amount limitations
facilitating one-way transfers to Nepal
receiving confirmation of the date / time of credit to the account of the beneficiaries,
Real Time Gross Settlement (RTGS) System
transfer of money takes place from one bank to another on a "real time" and on "gross" basis - no waiting period
transaction is settled on one to one basis without bunching or netting with any other transaction
Once processed, payments are final and irrevocable
2004
settles all inter-bank payments and customer transactions above ` 2 lakh.
Clearing Corporation of India Limited (CCIL)
2001
by banks, financial institutions and primary dealer
to function as an industry service organisation for clearing and settlement of trades in
money market
Collaterised Borrowing and Lending Obligation (CBLO) markets
repository for Over the Counter (OTC) products
government securities
role of a Central Counter Party (CCP)
Novation - the contract between buyer and seller gets replaced by two new contracts - between CCIL and each of the two parties
Through novation, the counterparty credit risk between the buyer and seller is eliminated with CCIL subsuming all counterparty and credit risks
To minimize risks, CCIL follows specific risk management practices which are as per international best practices
foreign exchange markets
USD –INR forex exchange (both spot and forward segments)
non guaranteed settlement services
National Financial Switch (Inter bank ATM transactions)
rupee derivatives such as Interest Rate Swaps
Other payment systems
Pre-paid Payment Systems
purchase of goods and services against the value stored
smart cards, magnetic stripe cards, internet accounts, internet wallets, mobile accounts, mobile wallets, paper vouchers, etc
cross border transactions - only payment instruments approved under Foreign Exchange Management Act,1999 (FEMA)
Mobile Banking System
Guidelines 2008
only banks which are licensed and supervised, physical presence in India can offer
need permission from Reserve Bank
ATMs / Point of Sale (POS) Terminals / Online Transactions
ATMs
Same branch 5 Others 3 for SBI
Online transactions directions - 2009
If intermediary - funds received from customers should be in internal accounts of bank and intermediary cant access it
technically referred to as card not present (CNP) transactions
CNP transactions should be additionally authenticated based on information not available on the card
an online alert should be sent to the cardholders for such transactions
regulated by the Payment and Settlement Systems Act, 2007 (PSS Act)
Sec 4- no person other than RBI can commence operation in PSS unless authorized by RBI
Authorized PSS
pre-paid payment instruments, card schemes, cross-border in-bound money transfers, Automated Teller Machine (ATM) networks and centralised clearing arrangements.
highest policy making body
Board for Regulation and Supervision of Payment and Settlement Systems (BPSS)
BPSS - sub-committee of the Central Board of RBI
prescribing policies and setting standards for regulating and supervising PSS
Department of Payment and Settlement Systems of RBI serves as the Secretariat to the Board and executes its directions
Governor of RBI is the chairpeson
Legislative framework
Reserve Bank of India Act, 1934
Payment and Settlement Systems Act, 2007
Payment and Settlement Systems Regulations, 2008 and Amended up to 2017 and BPSS Regulations, 2008
The Payment and Settlement Systems (Amendment) Act, 2015 - No. 18 of 2015
National Payment Corporation of India
umbrella organization for all retail payments system in India
set up with the guidance and support of RBI and IBA
“Not for Profit” Company under the now Section 8 of Companies Act 2013
Initiatives
UPI
Unified Payments Interface
allows money transfer between any two bank accounts by using a smartphone
pay directly from a bank account to different merchants
both online and offline
without the hassle of typing credit card details, IFSC code, or net banking/wallet passwords
BHIM
Bharat Interface for Money
app for bank-to-bank payments
pay and collect money using virtual payment address (UPI ID)
AePS
bank led model
allows online interoperable financial inclusion transaction at PoS (MicroATM)
through the Business correspondent of any bank
using the Aadhaar authentication
Bharat QR code
RuPay Card
MERCHANT DISCOUNT RATE
MDR subsidy
On
debit card
BHIM UPI/AePS Transactions
upto
Rs. 2000 which will be borne by government
for a period of
two year w.e.f. January 1 2018
What is MDR?
charge which the merchants pay to the bank
for accepting payments from customers through debit card in their establishment
It compensates the card issuing bank for facilitating for point of sale (PoS) transactions and payment gateway such as Mastercard and Visa.
RBI specifies the Maximum MDR charges that can be levied on every card transaction