Page 125 - DMGT303_BANKING_AND_INSURANCE

Banking and Insurance

Notes In the pre-RTGS regime, banks settled their inter-bank obligations by issue of paper based
instrument which used to be cleared in a net clearing system called 'inter-bank clearing'. Efficiency
of the inter bank clearing was highly dependent on efficient transportation of paper instrument
and use of a good number of staff either to collect or to hand over the instruments. Fragmented
inter-bank clearing settlement taking place at different centres in the country also interfered
with efficient cash management systems in banks and placed an additional burden of pooling of
funds at a centralized account.

The RTGS system ensures settlement finality in the books of the Reserve Bank on a real time
basis, thereby providing confidence to the sending bank as well as the receiving bank that the
payment transaction has been completed and the receiving bank can make use of the funds so
received immediately. The RTGS also altered the scenario by providing a platform of settling all
inter-bank transactions at Mumbai. The time window for settling inter-bank transactions has
also been widened from the earlier position of within the banking hours to the RTGS operating
hours of 9.00 am to 5.00 p.m on week days and 9 am to 2.30 p.m on Saturday.
The RTGS system is also used for customer transactions. No minimum or maximum limit has
been fixed on such transactions so far. Technically, time critical transactions of smaller value can
also be routed through the RTGS. In terms of RTGS operating guidelines, the receiving banks are
required to apply credit to the customers account as quickly as possible or return the transactions
within two hours, if the credit cannot be applied for some reason. Thus, banks are supposed to
credit the beneficiary's account within two hours.

Utilizing this RTGS infrastructure, a good number of banks have developed payment products
for their customers. Customers of Internet-enabled banks making requests for funds transfer
through the Internet within the RTGS hours can find the beneficiary's account credited within a
few minutes if the receiving banks have also built straight through processing engines at their
end. One bank has developed a product which facilitates remittance of funds from Gulf countries
in a straight through processing mode from end to end, facilitating credit to customers' accounts
within two hours.

National Financial Switch

The RBI's Institute of Development and Research in Banking Technology, Hyderabad has set up
a National Financial Switch that would enable sharing common technology infrastructure. NFS
would serve as a main common switch and facilitate connectivity as an e-Commerce payment
gateway both for Internet, ATM and mobile commerce thereby helping in authenticating and
providing route payment details between banks and various parties.

The National Inter Bank Payment Gateway Project will function as an integrated payment
service system between the parties concerned. Some of the major benefits of the new system
include:

24 × 7 × 365 convenience.
Real time authorization of credit/debit cards.
Rapid, efficient transaction processing.
Secure flow of transaction details among buyers, sellers and financial institutions.

Flexible, powerful real time reports generation.
Multi-currency settlements.

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