Payments and Settlement System

Payments and Settlement System- The central bank of any country is usually the driving force in the development of national payment systems. The Reserve Bank of India as the central bank of India has been playing this developmental role and has taken several initiatives for Safe, Secure, Sound, Efficient, Accessible, and Authorised payment systems in the country.

The Board for Regulation and Supervision of Payment and Settlement Systems (BPSS), a sub-committee of the Central Board of the Reserve Bank of India is the highest policy-making body on payment systems in the country. The BPSS is empowered for authorizing, prescribing policies, and setting standards for regulating and supervising all the payment and settlement systems in the country. The Department of Payment and Settlement Systems of the Reserve Bank of India serves as the Secretariat to the Board and executes its directions.

Payment Systems: The Reserve Bank has taken many initiatives towards introducing and upgrading safe and efficient modes of payment systems in the country to meet the requirements of the public at large. The dominant features of the large geographic spread of the country and the vast network of branches of the Indian banking system require the logistics of collection and delivery of paper instruments. These aspects of the banking structure in the country have always been kept in mind while developing the payment systems.

Paper-based Payments: The use of paper-based instruments (like cheques, drafts, and the like) accounts for nearly 60% of the volume of total non-cash transactions in the country. In value terms, the share is presently around 11%. This share has been steadily decreasing over a period of time and electronic mode gained popularity due to the concerted efforts of the Reserve Bank of India to popularize electronic payment products in preference to cash and cheques.

Electronic Payments: The initiatives are taken by RBI in the mid-eighties and early-nineties focused on technology-based solutions for the improvement of the payment and settlement system infrastructure, coupled with the introduction of new payment products by taking advantage of the technological advancements in banks. The continued increase in the volume of cheques added pressure on the existing set-up, thus necessitating a cost-effective alternative system.

Real-Time Gross Settlement (RTGS): Real-Time Gross Settlement (RTGS) has been adopted by major countries of the world and was implemented by the Reserve Bank on March 20, 2004. It provides for an electronic-based settlement of inter-bank and customer-based transactions. The Reserve Bank provides intraday collateralized liquidity support to the participants of the systems.

Other Payments Services: other payment services includes the following: