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Click Here For Highlights of RBI's Annual Policy Statement for 2005-06

Part II. Annual Statement on Developmental and Regulatory Policies for the Year 2005-06

V. Institutional Developments

Payment and Settlement Systems

(a) Payment and Settlement Systems: Action Points

111. As indicated in the mid-term Review of October 2004, a Vision Document for Payment and Settlement Systems was prepared by RBI under the guidance of the National Payment Council and was placed on the RBI website. Based on the feedback, a roadmap for upgradation of payment systems was drawn up for implementation in the next three years (2005-08). Some of the key action plans of the Document relate to a new umbrella organisation for retail payment systems, regulations for various modes of electronic credit transfers, risk mitigation measures to ensure settlement finality, efficiency enhancement measures, customer rights and services and rural reach. The Vision Document indicating action points would be placed in the public domain for wider dissemination by June 2005.

(b) Board for Regulation and Supervision of Payment and Settlement Systems

112. In continuation of the steps initiated by RBI for developing institutional framework for payment and settlement systems, a Board for Regulation and Supervision of Payment and Settlement Systems (BPSS) was constituted as a Committee of the Central Board of RBI as notified in the Gazette of India on February 18, 2005. The BPSS would prescribe policies relating to the regulation and supervision of all types of payment and settlement systems, set standards for existing and future systems, authorise the payment and settlement systems and determine criteria for membership to these systems.

113. In order to assist BPSS in performing its functions, RBI constituted a new department, the Department of Payment and Settlement Systems (DPSS). With the constitution of DPSS, the functions of the Department of Information Technology (DIT) would be to formulate and to implement information technology policies for RBI as well as for the banking and financial systems in the country.

(c) Electronic Payment Products: Status and Proposed Action

114. The coverage of RTGS and ECS has increased significantly during last year. As on April 25, 2005, RTGS connectivity was available in 4,776 bank branches at 398 centres of the country. It is expected that about 10,000 branches would be covered by end-March 2006.

115. The Reserve Bank proposes operationalisation of National Electronic Funds Transfer (NEFT) System, which would enable T+0 settlement for all networked branches of banks all over the country for electronic transfer of funds. In order to facilitate non-networked branches of banks to transfer funds electronically, the NEFT (Extended) System would be implemented under which these branches could access NEFT-enabled branches of banks for transfer of funds.

(d) Reinforcing of Information Security

116. In view of the increasing dependence of the financial sector on internal and external networks for their operations, information security has assumed greater importance. In this direction, RBI has initiated several measures to ensure information security in banks. As indicated in the mid-term Review of October 2002, banks were encouraged to use Public Key Infrastructure (PKI) to protect information security. Since then inter-bank systems like RTGS, PDO/NDS/SSS, SFMS, and CFMS have been made PKI-compliant. Banks are encouraged to make increasing use of SFMS which is PKI-enabled for inter/intra bank transactions.

Information Technology

Technology Policy: Vision Document

117. The Reserve Bank has been guiding banks in implementation of information technology (IT) so as to provide for seamless integration across various entities in the financial sector. In order to facilitate the technology plans of the financial sector, RBI is preparing a Financial Sector Technology Vision Document, covering the medium-term policy perspectives. The draft of the Vision Document would be put in the public domain for wider dissemination. Based on the feedback, action points would be finalised.

Urban Co-operative Banks

(a) UCBs: Medium-term Framework

118. As indicated in the mid-term Review of October 2004, a draft ‘Vision Document for Urban Co-operative Banks’ was prepared keeping in view the heterogeneity of the sector in terms of size, area of operation, performance and strength and was placed on the RBI website. Based on the feedback, a medium-term framework for urban co-operative banks (UCBs) up to 2010 is being drawn up in order to facilitate the development of this sector into a strong and vibrant system comprising entities conforming to all prudential requirements. The medium-term framework would be placed in the public domain for wider dissemination and for implementation as appropriate. The Standing Advisory Committee for Urban Co-operative Banks is increasingly being used for continuous dialogue with the various stakeholders of the sector.

(b) Restructuring of Weak Scheduled UCBs

119. Keeping in view the importance of scheduled UCBs, RBI has begun a consultative process involving officials of the concerned state governments and banks for revitalising and rehabilitating the weak scheduled UCBs. The emphasis is on a time-bound programme for restructuring of UCBs by identifying the contours of their rehabilitation plan and setting up monitorable milestones. The Reserve Bank would be closely monitoring the achievements of the banks vis-à-vis the targets, at regular intervals, and initiating appropriate action with a view to protecting depositors’ interests and avoiding systemic problems. The issues relating to large depositors, part conversion of deposits into equity, reduction of non-performing assets, human resources and technological development as also support from the state government would be examined. The option of merger/amalgamation could also be explored wherever necessary.

Non-banking Financial Companies

120. The non-banking financial companies (NBFCs) play a critical role as an instrument of credit delivery, particularly, in the small scale and retail sector in the remote areas. The emphasis has been on developing NBFCs into a financially strong sector with improved skills and technology. In this context, RBI is examining the issue of smooth flow of bank finance to NBFCs.

Working Group on Computerisation of State Treasuries and On-line Connectivity

121. The Reserve Bank has constituted a Working Group on Computerisation of State Treasuries and On-line Connectivity to gather information on government receipts and payments with members drawn from four state governments and RBI to study the existing practices in treasury functions of various states, system of accounting of receipts and payments, level of computerisation in treasuries, scope for further computerisation and issues relating to uniform application software for treasury operations.

Standing Committee on Procedures and Performance Audit on Public Services

122. As indicated in the mid-term Review of November 2003, the Standing Committee on Procedures and Performance Audit on Public Services (Chairman: Shri S.S. Tarapore) constituted by RBI has submitted 14 Reports. Six Reports submitted by the Committee deal with matters relating to foreign exchange, government transactions, banking operations, currency management, regional assessment and benchmarking. Eight special Reports were submitted dealing with specific references made by RBI. Banks and RBI have implemented most of the recommendations of the Committee. The Standing Committee ceased its operations in March 2005. In order to facilitate regular monitoring, Ad hoc Committees in banks have been converted to permanent Standing Committees on Customer Service. A system for monitoring on a regular basis the customer services rendered by RBI offices is being put in place.

Legal Reforms: Review of Developments

123. The Reserve Bank, in co-ordination with the Government, has taken initiatives for necessary changes in the legal structure to strengthen the functioning of the financial system. The Credit Information Companies (Regulation) Bill, 2004 and Government Securities Bill, 2004 were introduced in the Parliament. As indicated in the Union Budget, 2005-06, certain amendments to the Banking Regulation Act, 1949 and the Reserve Bank of India Act, 1934 will be considered by the Government. In addition, the Payment and Settlement Bill is being finalised by the Board for Regulation and Supervision of Payment and Settlement Systems.

Return to main page of Annual Policy Statement for the Year 2005-06

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