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RBI measures- Payment Systems

Payment and settlement systems in India have had a long history. The current predominant mode of funds settlement is through the clearing process - achieved by the functioning of about 1050 clearing houses in the country. These clearing houses function on the basis of the ‘Uniform Regulations and Rules for Bankers’ Clearing Houses’ (URR), a model regulation propounded by the Reserve Bank. Though the systems are predominantly confined to cheque clearing, many other types have also gained significance - such as electronic payment and settlement, securities settlement, and foreign exchange settlement. All these are regulated by their respective rules and procedures, as in the case of the Rules relating to Electronic Clearing Service (ECS), the Electronic Fund Transfer (EFT) Regulations and the bye-laws relating to the operations of the systems of the Clearing Corporation of India Ltd.

The Bank for International Settlements, Basel, has formulated a set of ‘Core Principles for Systemically Important Payment Systems’ which are the minimum requirements for a sound payment system. These requirements were also highlighted in the year 2000 by the Bhide Advisory Group which examined the International Standards and Codes relating to payment systems, from the perspective of conformity in the Indian context.

With the growing importance being ascribed towards payment and settlement systems the world over, and in view of their significance for financial stability, most central banks have set up an appropriate machinery to regulate and supervise such systems to provide for an explicit legal base for payment and settlement systems. In this background, a draft ’Payment and Settlement Systems’ bill was prepared by the Reserve Bank and forwarded to the Government of India.

In anticipation of the statutory changes, certain preliminary steps are proposed to be taken by the Reserve Bank to build the requisite infrastructure for having effective supervision over payment and settlement systems. A Board for Payment and Settlement Systems (BPSS) is proposed to be constituted soon. The Board would function in a manner similar to the Board for Financial Supervision. BPSS would provide policy directions in areas relating to regulation and supervision of payment and settlement systems, approval of payment systems, criteria for membership, various aspects relating to admission, continuation and denial of membership, handling of offences etc. This initiative would ensure that all the payment and settlement systems in the country are subject to good and efficient governance and that they adopt the best practices in risk management which is a prime requirement relating to a safe, secure and efficient payment and settlement systems. These arrangements should facilitate easy transition to a more formal statutory system.

[Extract from the Inaugural Address by Dr.Y.V.Reddy Governor, Reserve Bank of India at Twenty-Fifth Bank Economists’ Conference (BECON- 2003) on 11th December, 2003]

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