General Overview
In a 2005 report issued by the Reserve Bank of India (RBI), the authors maintain that India has, by March 2004, made all the systemically important payment systems (SIPS) compliant with the Core Principles, except the Inter-bank Clearings at places other than Mumbai and the High Value Clearing Systems. The RBI acknowledges that there is a need to complete this process in the near future and among its goals for 2006-2007 the RBI has indicated making all Payment Systems in India compliant to the Core Principles for Systemically Important Payment Systems (SIPS). (RBI 2005a, pp. 12, 18) Nevertheless, there is no comprehensive assessment publicly available regarding India's compliance with this standard.
The RBI identifies five systemically important payment systems in its 2006 annual report: the Inter-Bank Checks Clearing Systems (the Inter-bank Clearing); the High Value Checks Clearing System (the High Value Clearing); the Negotiated Dealing System; the Foreign Exchange Clearing System (the Forex Clearing); and the Real Time Gross Settlement (RTGS) system. The Inter-bank Clearing functions in 7 places and the High Value Clearing in 15 places - both are managed by the RBI. The RTGS system is also operated by the RBI. The RBI claims that it has, in line with international best practices in this regard, moved these systems (except the Inter-bank Clearings at places other than Mumbai and the High Value Clearings) to either secure and guaranteed systems or the RTGS system. (RBI 2006, p. 205; RBI 2005a, p. 6)
According to the RBI, as regards the design, development and implementation of critical payment system projects up to 2005, the following are the major accomplishments: extension of Magnetic Ink Character Recognition (MICR) based clearing to cover 40 major commercial centers facilitating thereby faster clearing of checks at more centers; operationalization of the RTGS system (RTGS service was available at more than 4,800 branches at 398 centers as at the end of April 2005); risk mitigation in wholesale payment systems by way of creating enabling conditions for establishment of Clearing Corporation of India Limited (CCIL) as a central counter party and settlement guarantee organization for settlement of Government Securities trading amongst the Negotiated Dealing System (NDS) members and inter-bank Foreign Exchange transactions; introduction of NDS for government securities and migrating to Delivery-versus-Payment (DVP)-III mode of settlement; implementation of Structured Financial Messaging Solution (SFMS) and Centralized Funds Management System (CFMS). Using CFMS, banks maintaining accounts with RBI at its various offices are in a position to know their balances at each location from their treasury branch; increase in scope and coverage of Electronic Clearing Service (ECS) in both its variants - Credit Clearing and Debit Clearing; implementation of Centralized ECS; enhancement in scope and coverage of Electronic Funds Transfer (EFT) system has been achieved through the Special EFT and the proposed National EFT, whereby many banks have integrated EFT with their own product offerings; removal of the per transaction limit for ECS and EFT transactions; participation of a few banks in Electronic Data Inter-change(EDI) projects initiated by the Government of India; launching of pilot project of multi-application smart cards as a prelude to setting standards in smart cards; creating conditions for competition in financial switch service for interconnecting ATMs leading to establishment of the National Financial Switch by Institute for Development and Research in Banking Technology; initiating steps for Check Truncation Pilot Project at New Delhi. (RBI 2005, pp. 3-4)
The Board for Regulation and Supervision of Payment and Settlement Systems (BPSS) has been constituted as a Committee of the Central Board of the Reserve Bank since March 2005. The Board lays down policies relating to the regulation and supervision of all types of payment and settlement systems, sets standards for existing and future systems, authorizes the payment and settlement systems, determines criteria for membership to these systems, including continuation, termination and rejection of membership. The Department of Payment and Settlement Systems provides secretarial assistance to the BPSS. The BPSS, since its constitution on March 7, 2005, has met on five occasions till June 2006. (RBI 2006, p. 204)
The Negotiable Instruments Act, 1881 (N.I. Act) continues to be the predominant legal base for all check-based (instrument-based) payment systems in India. It has been amended time and again to accommodate new requirements and policies. The latest amendments in respect of the definition of "check" by inclusion of the "electronic image of a truncated check" and a "check in the electronic form" have opened up avenues for introducing new methods of processing paper-based payment instruments. Simultaneous amendment to the Information Technology Act, 2000, making it applicable to N.I. Act, has accorded legal status to the usage of electronic payment systems in Indian banking. (RBI 2005, p. 11)
However, the electronic payment systems like ECS, EFT, NDS, RTGS, etc. work on the basis of a series of bi-lateral agreements made specifically for each one of them which are of contractual nature between the participant and the manager of the systems. The process of netting of payables and receivables is adopted by all payment systems except RTGS where the settlement is on gross basis. Existing legal structure does not explicitly cover 'netting' and 'finality of settlement'. (RBI 2005, p. 11)
The implementation of the RTGS system has revolutionized the large value payment system in the country by facilitating faster movement of funds across accounts. With the stabilization of the RTGS, the paper based inter-bank clearing at all the Reserve Bank managed centers was discontinued from June 2005. The RTGS facility was being provided by 96 banks as at end- June 2006, including the Reserve Bank, at over 21,916 branches in 2,793 centers in 469 districts. The value of transactions through RTGS system nearly tripled during 2005-06. (RBI 2006, p. 208)
As of 2006, there are about 1,030 clearing houses spread all over the country. The settlement of the net pay/receive obligations is done in the books of accounts of the settlement bank separately at each clearing centre. Banks participating in clearing who have net pay obligations and do not have adequate funds with the settlement bank are often required to get funds from other places by telegraphic transfer. Similarly, banks that have large surplus funds have to send out funds to places where there are shortages. This casts a liquidity burden on the banks as they do not get benefit of excess funds at one clearing centre to offset the deficit at another. Moreover, moving funds from one place to another is expensive, cumbersome and results in poor liquidity management. There was, therefore, an imperative need to settle the positions of banks in the various clearing houses centrally in the accounts maintained at Mumbai. Accordingly, a National Settlement System (NSS) is proposed to be set-up. The NSS would primarily cover 20 large commercially important centers and the Reserve Bank centers which do not fall under the category of such "Top 20" centers. The implementation of the NSS would be taken up after the full fledged RTGS-IAS is implemented. (RBI 2006, p. 208)
The overall turnover in the various payment and settlement systems rose by 35 per cent during 2005-06 on top of 67 per cent during 2004-05. The turnover in respect of RTGS transactions increased sharply. In terms of value, turnover in RTGS now constitutes the largest component, followed by foreign exchange clearing and high value clearing among the Systemically Important Payment Systems. (RBI 2006, p. 205)
The Principles
I. The system should have a well-founded legal basis under all relevant jurisdictions. |
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In a 2005 report issued by the Reserve Bank of India (RBI), the authors maintain that India has, by March 2004, made all the systemically important payment systems (SIPS) compliant with the Core Principles, except the Inter-bank Clearings at places other than Mumbai and the High Value Clearing Systems. The RBI acknowledges that there is a need to complete this process in the near future. (RBI 2005a, p. 12) Nevertheless, there is insufficient publicly available third-party information regarding India's compliance with this principle.
The Payments and Settlements Bill, 2006 has been introduced in the Lok Sabha on July 25, 2006. The Bill seeks to designate the Reserve Bank as the authority to regulate Payment and Settlement Systems. The Bill contains provisions for (i) compulsory requirement of an authorization by the Reserve Bank to operate payment systems; (ii) empowering the Reserve Bank to regulate and supervise the payment systems by determining standards, and calling for information, returns, documents, etc .; (iii) empowering the Reserve Bank to audit and inspect by entering the premises where payment systems are being operated; (iv) empowering the Reserve Bank to issue directions; and, (v) providing for settlement and netting to be final and irrevocable at the determination of the amount of money, securities or foreign exchange payable by participants. (RBI 2006, p. 13)
The Negotiable Instruments Act, 1881 (N.I. Act) continues to be the predominant legal base for all check-based (instrument-based) payment systems in India. It has been amended time and again to accommodate new requirements and policies. The latest amendments in respect of the definition of "check" by inclusion of the "electronic image of a truncated check" and a "check in the electronic form" have opened up avenues for introducing new methods of processing paper-based payment instruments. Simultaneous amendment to the Information Technology Act, 2000, making it applicable to N.I. Act, has accorded legal status to the usage of electronic payment systems in Indian banking. (RBI 2005a, p. 10)
However, the electronic payment systems like the Electronic Clearing System (ECS), Electronic Funds Transfer (EFT), Negotiated Dealing System (NDS), Real-Time Gross Settlement System (RTGS), etc. work on the basis of a series of bilateral agreements made specifically for each one of them which are of contractual nature between the participant and the manager of the systems. The process of netting of payables and receivables is adopted by all payment systems except RTGS where the settlement is on gross basis. Existing legal structure does not explicitly cover 'netting' and 'finality of settlement'. (RBI 2005a, p. 10)
The growth and proliferation of existing and new payment systems has necessitated central banks to move away from operating retail payment systems. Management and operations of payment systems are being taken over by consortium of banks, central counter parties, authorized private service providers, etc. Lack of an apposite provision in law for regulation and supervision of these entities reduces the scope of having a monitoring mechanism leading to apprehension of participants and end-users on the safety and security of the payment systems. (RBI 2005a, p. 10)
The 'Payment and Settlement Systems Bill' has been proposed with the view to receiving and creating legal definition of 'netting' and 'settlement finality' and also to create a regulatory framework for the payment and settlement systems. (RBI 2005a, p. 11)
The shift towards electronic modes of payments has revealed inadequacies in the present legal structure and consequently there is lack of legal clarity about the products designed using information technology. This issue becomes more pronounced in respect of the 'instruction' based payments, i.e. the now prominent 'credit transfer' systems. The United Nations has published an UNCITRAL Model Law on International Credit Transfers (1994) to cover payment instructions which are originated by the payer through a banking system to pay into a beneficiary's bank account. Such a law will have to be put in place in India too as current international trends indicate a bias towards the more risk-free credit transfer mode of payments. (RBI 2005a, p. 11)
Keeping in view the possibility of dishonor of instructions on the due date, the issue of legality of action required to be taken against the defaulters has to be addressed. Such instructions of payment are in the nature of non-negotiable standing instructions. These types of instructions, not being instruments, are not covered under the existing laws. Therefore, there is a need to examine this issue to provide desirable level of robustness. (RBI 2005a, p. 11)
The RBI identified several areas for further action, including enacting the Payment and Settlement Systems Bill; framing regulations for authorized payment and settlement systems; finalizing EFT regulations; initiating the process of legislation for credit transfer transactions on the lines of UNCITRAL Model Law on International Credit Transfers (1994); and drafting regulations for ECS (Debit Clearing). (RBI 2005a, p. 11)
The Negotiable Instruments Act, 1881 has already been amended to enable check truncation and to define e-check. A Payment and Settlement Systems Bill has been drafted. Consequent upon Government of India Gazette Notification dated February 18, 2005 of the Reserve Bank of India (Board for Regulation and Supervision of Payment and Settlement Systems) Regulation, 2005, a Board for Payment and Settlement Systems has been constituted with effect from March 7, 2005. (RBI 2005a, p. 5)
In its 2004 review, the Advisory Groups Constituted by the Standing Committee on International Financial Standards And Codes recommend that, after the Payment and Settlement Systems Bill is passed, the Uniform Regulations and Rules for Bankers' Clearing Houses could be reviewed. RBI and the Government of India could consider further implementation in this regard with enabling legislative changes. (RBI 2004, p. 94)
II. The system's rules and procedures should enable participants to have a clear understanding of the system’s impact on each of the financial risks they incur through participation in it. |
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In a 2005 report issued by the Reserve Bank of India (RBI), the authors maintain that India has, by March 2004, made all the systemically important payment systems (SIPS) compliant with the Core Principles, except the Inter-bank Clearings at places other than Mumbai and the High Value Clearing Systems. The RBI acknowledges that there is a need to complete this process in the near future. (RBI 2005a, p. 12) Nevertheless, there is insufficient publicly available third-party information regarding India's compliance with this principle.
The Advisory Groups Constituted by the Standing Committee on International Financial Standards And Codes also notes that the RBI has placed the Uniform Regulations and Rules for Bankers' Clearing Houses, the Negotiated Dealing System (NDS) rules and the RTGS Business rules on the RBI website. The Procedural Guidelines for ECS and EFT are also on the website. (RBI 2004, p. 94)
The Reserve Bank of India (RBI) remarks in its 2005 report that clarity and certainty about the terms on which payments are effected on one hand and about the liabilities and responsibilities of the payment service providers on the other will go a long way in furthering customer confidence and protection of their rights. Therefore, banks will be encouraged to publicly and prominently disclose their payment service policies and the terms and conditions of effecting payments through them, the rate and fees, compensation for deficiency in service, the grievance redressal procedures, etc. (RBI 2005a, p. 15)
The RBI recognized that, as innovative and new type of payment services and instruments become a reality, there is a corresponding need for making the customers aware of the benefits, and the possible risks in using them. Customer education and awareness campaign should be periodically and regularly conducted through the media by the banks, bankers' association and the Reserve Bank. (RBI 2005a, p. 15)
The RBI proposed setting up Customer Facilitation Centre (CFC) by each payment service provider (RBI will set up an integrated CFC for the Real-Time Gross Settlement System (RTGS), Government Securities Clearing System (the G-Sec Clearing), Magnetic Ink Character Recognition (MICR) Clearing, Electronic Clearing System (ECS) and Electronic Funds Transfer (EFT) systems operated by RBI); requiring 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; 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. (RBI 2005a, pp. 15-16)
III. The system should have clearly defined procedures for the management of credit risks and liquidity risks, which specify the respective responsibilities of the system operator and the participants and which provide appropriate incentives to manage and contain those risks. |
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In a 2005 report issued by the Reserve Bank of India (RBI), the authors maintain that India has, by March 2004, made all the systemically important payment systems (SIPS) compliant with the Core Principles, except the Inter-bank Clearings at places other than Mumbai and the High Value Clearing Systems. The RBI acknowledges that there is a need to complete this process in the near future. (RBI 2005a, p. 12) Nevertheless, there is insufficient publicly available third-party information regarding India's compliance with this principle.
The Advisory Groups Constituted by the Standing Committee on International Financial Standards and Codes notes that a proper framework for counterparty risk has been provided for Core Principles-compliant systemically important payment systems. No further action now appears necessary. (RBI 2004, p. 94)
The real-time gross settlement system (RTGS), government securities clearing and forex clearing provide for same day settlement. As far as check clearing is concerned, Magnetic Ink Character Recognition (MICR)-based clearing is already covered under same day settlement at clearing houses. The Electronic Clearing System (ECS) has same day settlement while Electronic Funds Transfer (EFT) has multiple settlements during a day. In addition, RBI has implemented a Centralized Funds Management System (CFMS) and introduced central counterparty arrangements and secure netting in some market segments to eliminate credit and liquidity risks. RTGS eliminates credit risk in large party transactions. Collateralized repo-based intra-day liquidity support has been provided to RTGS members. Necessary action has largely been completed. (RBI 2004, p. 95)
The Advisory Groups also remark that the Clearing Corporation of India Limited (CCIL) systems have adequate arrangements. However, cheque clearing systems, which are retail payment systems, are not fully compliant with Core Principles. This issue is being deliberated by RBI and IBA with the member banks. A Working Group for Risk Mitigation Mechanism for Deferred Net Settlement (DNS) Systems has been constituted to examine whether (a) a Contributory Guarantee Fund needs to be created to neutralize a settlement default by one or more participants in the clearing system; and (b) whether the minimum balances maintained by participants in the various clearing houses with the settlement banks should be significantly increased. Based on the recommendations of this Group, the systems for risk reduction in retail systems would also be implemented. (RBI 2004, p. 95)
The Reserve Bank of India (RBI) states in its 2005-06 annual report that, at present, there are about 1,030 clearing houses spread all over the country. The settlement of the net pay/receive obligations is done in the books of accounts of the settlement bank separately at each clearing centre. Banks participating in clearing who have net pay obligations and do not have adequate funds with the settlement bank are often required to get funds from other places by telegraphic transfer. Similarly, banks that have large surplus funds have to send out funds to places where there are shortages. This casts a liquidity burden on the banks as they do not get benefit of excess funds at one clearing centre to offset the deficit at another. Moreover, moving funds from one place to another is expensive, cumbersome and results in poor liquidity management. There was, therefore, an imperative need to settle the positions of banks in the various clearing houses centrally in the accounts maintained at Mumbai. Accordingly, a National Settlement System (NSS) is proposed to be set-up. The NSS would primarily cover 20 large commercially important centers and the Reserve Bank centers which do not fall under the category of such "Top 20" centers. The implementation of the NSS would be taken up after the full fledged RTGS-IAS is implemented. (RBI 2006, p. 208)
IV. The system should provide prompt final settlement on the day of value, preferably during the day and at a minimum at the end of the day. (Systems should seek to exceed the minima included in this Core Principle.) |
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In a 2005 report issued by the Reserve Bank of India (RBI), the authors maintain that India has, by March 2004, made all the systemically important payment systems (SIPS) compliant with the Core Principles, except the Inter-bank Clearings at places other than Mumbai and the High Value Clearing Systems. The RBI acknowledges that there is a need to complete this process in the near future. (RBI 2005a, p. 12) Nevertheless, there is insufficient publicly available third-party information regarding India's compliance with this principle.
In a 2004 report issued by the Advisory Groups Constituted by the Standing Committee on International Financial Standards and Codes, the real-time gross settlement system (RTGS), government securities clearing and forex clearing provide for same day settlement. As far as check clearing is concerned, Magnetic Ink Character Recognition (MICR)-based clearing is already covered under same day settlement at clearing houses. The Electronic Clearing System (ECS) has same day settlement while Electronic Funds Transfer (EFT) has multiple settlements during a day. In addition, RBI has implemented a Centralized Funds Management System (CFMS) and introduced central counterparty arrangements and secure netting in some market segments to eliminate credit and liquidity risks. RTGS eliminates credit risk in large party transactions. Collateralized repo-based intra-day liquidity support has been provided to RTGS members. Necessary action has largely been completed. (RBI 2004, p. 95)
The Advisory Groups Constituted by the Standing Committee on International Financial Standards And Codes states that, in case of government securities, new system should be expedited to reduce pre-settlement risk by executing trade preferably on T+0 basis. Appropriate action has been taken. The Negotiated Dealing System (NDS) has been put in place by the RBI. The current move is to migrate towards a T+1 settlement for all securities settlements in the country. (RBI 2004, p. 98)
The RBI states in its 2005-06 annual report that the Integrated Accounting System (IAS) of the Reserve Bank is being integrated with the RTGS system. The full fledged operation of the RTGS-IAS system would begin shortly. The benefits of implementation of RTGS-IAS are: automated Start-of-Day funding of the RTGS Settlement Account (i.e., transfer of funds on the basis of standing instruction from the current account to the settlement account); automated End-of-Day flushing of the RTGS Settlement Account (i.e., transfer of funds from the settlement account to the current account to make the settlement account zero); message-based Own Account Transfer (OAT) between the RTGS Settlement Account and the current account in IAS or two current accounts in IAS in Deposit Accounts Department (DAD) of the Reserve Bank at Mumbai; multilateral Net Settlement Batch-Settlement of the Net Clearing Batches such as Magnetic Ink Character Recognition (MICR), EFT, ECS from NCC, Government securities, foreign exchange, collateralized borrowing and lending operations (CBLO) and NFS-ATM from Clearing Corporation of India Limited (CCIL) and the net clearing batches originating from the Mumbai Stock Exchange (BSE) and the National Stock Exchange of India (NSE); automated Intra-day Liquidity (IDL) facility including automated request for grant of IDL, automated reversal of outstanding IDL with incoming credits, and intra-day addition/withdrawal of un-encumbered securities offered for IDL availment; and Gridlock Resolution Mechanism. (RBI 2006, pp. 208-09)
V. A system in which multilateral netting takes place should, at a minimum, be capable of ensuring the timely completion of daily settlements in the event of an inability to settle by the participant with the largest single settlement obligation. (Systems should seek to exceed the minima included in this Core Principle.) |
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In a 2005 report issued by the Reserve Bank of India (RBI), the authors maintain that India has, by March 2004, made all the systemically important payment systems (SIPS) compliant with the Core Principles, except the Inter-bank Clearings at places other than Mumbai and the High Value Clearing Systems. The RBI acknowledges that there is a need to complete this process in the near future. (RBI 2005a, p. 12) Nevertheless, there is insufficient publicly available third-party information regarding India's compliance with this principle.
The Advisory Groups Constituted by the Standing Committee on International Financial Standards And Codes claims in its 2004 review that the Clearing Corporation of India Limited (CCIL) has been set up and it provides secure netting system within a central counterparty arrangement. No further action is necessary in this regard. (RBI 2004, p. 99)
According to the RBI, there are various types of electronic clearing systems functioning in the retail payments area in the country. Electronic Clearing System (ECS), both for Credit and Debit operations, functions from 46 places (15 managed by Reserve Bank and the rest by the State Bank of India and one by State Bank of Indore). The ECS is the Indian version of the Automated Clearing Houses (ACH) for catering to bulk payments. The Electronic Funds Transfer (EFT) System is operated by the Reserve Bank at 15 places. This is typically for individual / single payments. These systems are governed by their own respective rules. A variant of the EFT, called the Special Electronic Funds Transfer (SEFT) System is also operated by the Reserve Bank to provide nation-wide coverage for EFT. All these electronic fund transfer systems settle on deferred net settlement basis. (RBI 2005a, p. 5)
The RBI mentions in its 2005-06 annual report that the National Electronic Funds Transfer (NEFT) system which uses Structured Financial Messaging Solution (SFMS) of the Indian Financial Network (INFINET) was operationalized in November 2005, ahead of the target date of December 2005. The NEFT, a deferred net settlement funds transfer system, addresses the lacunae which are faced in the EFT and SEFT system. The use of digital signatures under NEFT provides a legal basis for EFT under the Information Technology Act, 2000. With the implementation of the NEFT, the Special EFT system in operation has been discontinued from January 2006. The existing EFT system in operation at the 15 Reserve Bank centrers is also scheduled to be discontinued once NEFT system stabilizes. The number of settlements of NEFT has been gradually increased from 2 settlements a day to 4 settlements (9:30 am, 10:30 am, 12 noon and 4:00 pm). This has enabled customers to get funds on a near to real time basis and mitigate risk in a deferred net settlement system. (RBI 2006, p. 208)
The Integrated Accounting System (IAS) of the Reserve Bank is being integrated with the Real-Time Gross Settlement (RTGS) system. The full fledged operation of the RTGS-IAS system would begin shortly. The benefits of implementation of RTGS-IAS include Multilateral Net Settlement Batch-Settlement of the Net Clearing Batches such as Magnetic Ink Character Recognition (MICR), EFT, ECS from NCC, Government securities, foreign exchange, collateralized borrowing and lending operations (CBLO) and NFS-ATM from Clearing Corporation of India Limited (CCIL) and the net clearing batches originating from the Mumbai Stock Exchange (BSE) and the National Stock Exchange of India (NSE). (RBI 2006, p. 208)
However, the RBI also points out that the electronic payment systems like ECS, EFT, Negotiated Dealing System (NDS), RTGS, etc. work on the basis of a series of bi-lateral agreements made specifically for each one of them which are of contractual nature between the participant and the manager of the systems. The process of netting of payables and receivables is adopted by all payment systems except RTGS where the settlement is on gross basis. Existing legal structure does not explicitly cover 'netting' and 'finality of settlement'. (RBI 2005a, p. 10)
VI. Assets used for settlement should preferably be a claim on the central bank; where other assets are used, they should carry little or no credit risk and little or no liquidity risk. |
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In a 2005 report issued by the Reserve Bank of India (RBI), the authors maintain that India has, by March 2004, made all the systemically important payment systems (SIPS) compliant with the Core Principles, except the Inter-bank Clearings at places other than Mumbai and the High Value Clearing Systems. The RBI acknowledges that there is a need to complete this process in the near future. (RBI 2005a, p. 12) Nevertheless, there is insufficient publicly available third-party information regarding India's compliance with this principle.
In the 2000 Report of the Advisory Group on Payment and Settlement System, the Group appreciates that since Central Bank money or fiat money is the most risk free among all assets, its use for settlement does not entail any credit risk. If, however, settlement is done offsetting claims on other assets e.g., maturity proceeds of certificates of deposit (CD), commercial paper (CP), credit card receivables etc., then participants are exposed to credit risk in the event of failure of the issuers of these instruments. In India, settlements are done only with the Central Bank money and, therefore, offsetting one claim against claims other than the Central Bank money is not relevant. (RBI 2000, p. 5)
VII. The system should ensure a high degree of security and operational reliability and should have contingency arrangements for timely completion of daily processing. |
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In a 2005 report issued by the Reserve Bank of India (RBI), the authors maintain that India has, by March 2004, made all the systemically important payment systems (SIPS) compliant with the Core Principles, except the Inter-bank Clearings at places other than Mumbai and the High Value Clearing Systems. The RBI acknowledges that there is a need to complete this process in the near future. (RBI 2005a, p. 12) Nevertheless, there is insufficient publicly available third-party information regarding India's compliance with this principle.
The Reserve Bank of India maintains that all the payment and settlement systems are required to be on sound footing, with adequate legal backing, firm operational procedures and transparency norms. (RBI 2005a, p. 7)
Under the approach to computerization and networking, with the definitive role of technology in facilitating large scale developments in payment and settlement systems, the main requirements of the Indian Financial Network (INFINET) becoming the secure, dedicated communication backbone for the banking and financial sector namely, a generic architecture model for connectivity, standardization of hardware, operating systems, systems software, application software and messaging middleware, prescribing a Common Minimum Requirement Level for hardware and networking requirements for payment gateways, secured connectivity between internet and INFINET, link between Society for Worldwide Interbank Financial Telecommunication (SWIFT) and INFINET have all been achieved; facilities for e-mail, and secured file transfer are now available on INFINET; applications for ATM transactions, intra-bank transactions like remittances and foreign exchange transactions do use INFINET. (RBI 2005a, p. 3)
Ensuring availability of payment systems through appropriate business continuity plans (BCP) would receive priority. For Magnetic Ink Character Recognition (MICR) Clearing at the four metropolitan centrers, back up MICR centers have already been setup. At Mumbai, there are now three check processing centers in different parts of the city which act as backup to one another. For other MICR centers, nearby MICR centre form part of backup arrangement. As regards the large value national payment systems like RTGS and G-Sec Clearing, on-city back-up has been created. Thrust during the next three years would be to build data centers - both on-city and off-city which would be the processing hubs for all large value payment systems. On-city data centre arrangement would consist of the primary processing site and a hot standby backup. The off-city data centre in a non seismic zone would serve as remote backup. (RBI 2005a, p. 13)
The real time gross settlement (RTGS) system is a fully secure system which uses digital signatures, and Public Key Infrastructure (PKI) based encryption for safe and secure message transmission. (RBI 2003)
The integration of the RTGS system with the internal accounting system of the Reserve Bank is in progress. The test run has commenced. The integrated full fledged system, when fully implemented by September 2005, would provide additional functionalities including a Gridlock Resolution Mechanism. (RBI 2005b, p. 177)
VIII. The system should provide a means of making payments which is practical for its users and efficient for the economy. |
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In a 2005 report issued by the Reserve Bank of India (RBI), the authors maintain that India has, by March 2004, made all the systemically important payment systems (SIPS) compliant with the Core Principles, except the Inter-bank Clearings at places other than Mumbai and the High Value Clearing Systems. The RBI acknowledges that there is a need to complete this process in the near future. (RBI 2005a, p. 12) Nevertheless, there is insufficient publicly available third-party information regarding India's compliance with this principle.
IX. The system should have objective and publicly disclosed criteria for participation, which permit fair and open access. |
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In a 2005 report issued by the Reserve Bank of India (RBI), the authors maintain that India has, by March 2004, made all the systemically important payment systems (SIPS) compliant with the Core Principles, except the Inter-bank Clearings at places other than Mumbai and the High Value Clearing Systems. The RBI acknowledges that there is a need to complete this process in the near future. (RBI 2005a, p. 12) Nevertheless, there is insufficient publicly available third-party information regarding India's compliance with this principle.
The Board for Regulation and Supervision of Payment and Settlement Systems (BPSS) has been constituted as a Committee of the Central Board of the Reserve Bank since March 2005. The Board lays down policies relating to the regulation and supervision of all types of payment and settlement systems, sets standards for existing and future systems, authorizes the payment and settlement systems, determines criteria for membership to these systems, including continuation, termination and rejection of membership. The Department of Payment and Settlement Systems provides secretarial assistance to the BPSS. The BPSS, since its constitution on March 7, 2005, has met on five occasions till June 2006. (RBI 2006, p. 204)
In a 2005 report by the Reserve Bank of India (RBI), the authors acknowledge that clarity and certainty about the terms on which payments are effected on one hand and about the liabilities and responsibilities of the payment service providers on the other will go a long way in furthering customer confidence and protection of their rights. Therefore, banks will be encouraged to publicly and prominently disclose their payment service policies and the terms and conditions of effecting payments through them, the rate and fees, compensation for deficiency in service, the grievance redressal procedures, etc. (RBI 2005a, p. 15)
X. The system's governance arrangements should be effective, accountable and transparent. |
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In a 2005 report issued by the Reserve Bank of India (RBI), the authors maintain that India has, by March 2004, made all the systemically important payment systems (SIPS) compliant with the Core Principles, except the Inter-bank Clearings at places other than Mumbai and the High Value Clearing Systems. The RBI acknowledges that there is a need to complete this process in the near future. (RBI 2005a, p. 12) Nevertheless, there is insufficient publicly available third-party information regarding India's compliance with this principle.
A. The central bank should define clearly its payment system objectives and should disclose publicly its role and major policies with respect to systemically important payment systems. |
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In a 2005 report issued by the Reserve Bank of India (RBI), the authors maintain that India has, by March 2004, made all the systemically important payment systems (SIPS) compliant with the Core Principles, except the Inter-bank Clearings at places other than Mumbai and the High Value Clearing Systems. The RBI acknowledges that there is a need to complete this process in the near future. (RBI 2005a, p. 12) Nevertheless, there is insufficient publicly available third-party information regarding India's compliance with this principle.
The Advisory Groups Constituted by the Standing Committee on International Financial Standards And Codes reports in its 2004 review that the Reserve Bank of India (RBI) has placed the Uniform Regulations and Rules for Bankers' Clearing Houses, the Negotiated Dealing System (NDS) rules and the Real-Time Gross Settlement System (RTGS) Business rules on the RBI website. The Procedural Guidelines for the Electronic Clearing System (ECS) and Electronic Funds Transfer (EFT) are also on the website. (RBI 2004, p. 94)
The Board for Regulation and Supervision of Payment and Settlement Systems (BPSS) has been constituted as a Committee of the Central Board of the Reserve Bank since March 2005. The Board lays down policies relating to the regulation and supervision of all types of payment and settlement systems, sets standards for existing and future systems, authorizes the payment and settlement systems, determines criteria for membership to these systems, including continuation, termination and rejection of membership. The Department of Payment and Settlement Systems provides secretarial assistance to the BPSS. The BPSS, since its constitution on March 7, 2005, has met on five occasions till June 2006. (RBI 2006, p. 204)
B. The central bank should ensure that the systems it operates comply with the Core Principles. |
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In a 2005 report issued by the Reserve Bank of India (RBI), the authors maintain that India has, by March 2004, made all the systemically important payment systems (SIPS) compliant with the Core Principles, except the Inter-bank Clearings at places other than Mumbai and the High Value Clearing Systems. The RBI acknowledges that there is a need to complete this process in the near future. (RBI 2005a, p. 12) Nevertheless, there is insufficient publicly available third-party information regarding India's compliance with this principle.
The Advisory Groups Constituted by the Standing Committee on International Financial Standards And Codes reports in its 2004 review that the Government securities settlement and forex settlement systems operated by the CCIL and the Real-Time Gross Settlement System (RTGS) operated by the RBI are Lamfalussy-compliant and are under constant review. (RBI 2004, p. 94)
C. The central bank should oversee compliance with the Core Principles by systems it does not operate and it should have the ability to carry out this oversight. |
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In a 2005 report issued by the Reserve Bank of India (RBI), the authors maintain that India has, by March 2004, made all the systemically important payment systems (SIPS) compliant with the Core Principles, except the Inter-bank Clearings at places other than Mumbai and the High Value Clearing Systems. The RBI acknowledges that there is a need to complete this process in the near future. (RBI 2005a, p. 12) Nevertheless, there is insufficient publicly available third-party information regarding India's compliance with this principle.
The Advisory Groups Constituted by the Standing Committee on International Financial Standards And Codes reports in its 2004 review that the Government securities settlement and forex settlement systems operated by the Clearing Corporation of India Limited (CCIL) and the Real-Time Gross Settlement System (RTGS) operated by the RBI are Lamfalussy-compliant and are under constant review. (RBI 2004, p. 94)
D. The central bank, in promoting payment system safety and efficiency through the Core Principles, should cooperate with other central banks and with any other relevant domestic or foreign authorities. |
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In a 2005 report issued by the Reserve Bank of India (RBI), the authors maintain that India has, by March 2004, made all the systemically important payment systems (SIPS) compliant with the Core Principles, except the Inter-bank Clearings at places other than Mumbai and the High Value Clearing Systems. The RBI acknowledges that there is a need to complete this process in the near future. (RBI 2005a, p. 12) Nevertheless, there is insufficient publicly available third-party information regarding India's compliance with this principle.
India