Page 104 - DMGT303_BANKING_AND_INSURANCE

Unit 5: Payment and Settlement System

9. The chief reasons for the use of cheque by common masses are that they do not require a Notes
computer or debit card at the point of sale.
10. Ordinarily, the transactions among banks (not pertaining to customer transactions) would
be for smaller values.

5.6 Role of RBI in Payment Systems

The RBI, apart from the role of regulator and supervisor of payment systems, also plays the role
of a Settlement Bank apart from being a catalyst, an operator and a user. The RBI has been taking
initiatives in introducing new modes of more efficient and safe means of effecting payments in
the country on a continuous basis. The RBI introduced the system of Magnetic Ink Character
Recognition (MICR) based cheque clearing during late 80s for four metropolitan cities (Mumbai,
New Delhi, Chennai and Kolkata). During the mid 90s, electronic payment systems like ECS and
EFT were introduced. During 2004-05, RTGS was introduced. Besides introducing these newer
mechanisms or systems, the RBI has also been constantly ensuring that the existing systems are
upgraded/refined to increase their efficiency and to meet the requirements of customers. Taking
advantage of advancements in technology, the RBI has brought in additional safety measures in
these systems to make them secure and also to maintain the integrity of such transactions.
Besides operating the various components of payments systems, RBI also participates in these
systems as a user. RBI acts as a service provider and after the system stabilises, the responsibility
is handed over to other banks/institutions for further development. RBI also has the role of
regulating and supervising the various payment systems.
RBI as regulator of Payment System: The Board for regulation and supervision of Payment and
Settlement Systems (BPSS) is a subcommittee of the Central Board of the RBI and is the highest
policy making body on payment system. The Board is assisted by a technical committee called
National Payments Council (NPC) with eminent experts in the field as members. The Board as
well as the council are assisted by a newly created department—the Department of Payment and
settlement Systems (DPSS). The Board has been entrusted with the responsibility to authorize,
prescribe policies and set standards for all existing and future payment systems in the country.
The Board also has the powers to determine membership criteria to these systems and related
policies.

5.7 Payment and Settlement Systems in India - Major developments
in the past decade

During the last decade, payment system services offered by banks to the common persons as
well as the corporate bodies have improved substantially. It is partly due to increased use of
technology in service delivery and partly due to procedural changes necessitated in the wake of
competition amongst the banks.
Changes visible are the following:
First, cheque clearing system has vastly improved. Time taken for collecting a local cheque has
now reduced to two or three days. It used to take 4 or 5 days earlier. In 42 large cities, automated
cheque processing centres have been set up where cheques received by all bank branches in the
city are processed at night. Time taken for collection of outstation cheques has also been reduced.
Now it takes 4 to 10 days depending on location of the paying centres. It used to take 10 days to
one month earlier.
Second, during the 90s, a few variants of electronic payment products were introduced. Electronic
Clearing Service (ECS) helped large corporate bodies to pay their dividend, interest and refunds

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