Payment and settlement systems play a vital role in improving overall economic efficiency of any country. The system consist of all type of arrangements that use to systematically transfer money-currency, paper instruments such as cheques, and various electronic channels. The central bank of any country is usually the driving force in the development of national payment systems. In India, the RBI has been playing this developmental role.
The Board for Regulation and Supervision of Payment and Settlement Systems (BPSS), a sub-committee of the RBI is the highest policy making body on payment systems in the country. In India, the payment and settlement systems are regulated by the Payment and Settlement Systems Act, 2007 (PSS Act).
Payment System Initiatives
The RBI has taken many initiatives towards introducing and upgrading safe, sound and efficient modes of payment systems in the country. At present, there are payments in India can be made through paper based instruments , electronic instruments and other instruments , such as, mobile banking, ATM based, Point-of-sale terminals, online transactions.
Use of paper-based instruments like cheques, drafts etc. 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.
The initiatives taken by the RBI in the early-nineties focused on technology-based solutions for the improvement of the payment and settlement system in the country.
Electronic Clearing Service (ECS) Credit
The RBI introduced the ECS (Credit) scheme during the 1990s to handle bulk and repetitive payment requirements like salary, interest, dividend payments of corporates and other institutions. ECS (Credit) facilitates customer accounts to be credited on the specified value date and is presently available at all major cities in the country.
In 2008, the RBI launched a new service known as National Electronic Clearing Service (NECS). NECS (Credit) facilitates multiple credits to beneficiary accounts with destination branches across the country against a single debit of the account of the sponsor bank.
Regional ECS (RECS)
Next to NECS, RECS has been launched during the year 2009.RECS, a miniature of the NECS is confined to the bank branches within the jurisdiction of a Regional office of RBI.
Electronic Clearing Service (ECS) Debit
The Scheme was introduced by RBI to provide a faster method of effecting periodic and repetitive collections of utility companies. It facilitates consumers of utility companies to make routine and repetitive payments by ‘mandating’ bank branches to debit their accounts and pass on the money to the companies.
National Electronic Funds Transfer (NEFT) System
In November 2005, a more secure system was introduced for facilitating one-to-one funds transfer requirements of individuals / corporates. This system provides for batch settlements at hourly intervals.
Real Time Gross Settlement (RTGS) System
RTGS is a funds transfer systems where transfer of money takes place from one bank to another on a "real time" and on "gross" basis. Settlement in "real time" means payment transaction is not subjected to any waiting period. "Gross settlement" means the transaction is settled on one to one basis without bunching or netting with any other transaction. Once processed, payments are final and irrevocable. This was introduced in 2004.
Clearing Corporation of India Limited (CCIL)
The CCIL was set up in April, 2001 for providing exclusive clearing and settlement for transactions in Money, GSecs and Foreign Exchange. The prime objective has been to improve efficiency in the transaction settlement process, debt and forex markets in the country.
Other Payment Systems
Mobile Banking System
Mobile phones as a medium for providing banking services have been attaining enlarged importance. RBI brought out a set of operating guidelines on mobile banking for banks in 2008, according to which only banks which are licensed and supervised in India and have a physical presence in India are permitted to offer mobile banking after obtaining necessary permission from RBI.
ATMs / Point of Sale (POS) Terminals / Online Transactions
As per data released by RBI presently, there are over 61,000 ATMs in India. Savings Bank customers can withdraw cash from any bank terminal up to 5 times in a month without being charged for the same.
The POS terminals help in carrying out cashless transactions at merchant outlets by swiping credit/ debit cards on the POS machine.