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Our Bureau

`Real time gross settlement system usage low'

MR V. LEELADHAR

Bangalore March 21 The Reserve Bank of India is on track for implementation of Basel II guidelines by March 2008 for Indian banks with global presence and foreign banks operating in the country.

Speaking at the inauguration of 125 Automatic Teller Machines of the public sector Canara Bank, RBI's Deputy Governor Mr V. Leeladhar said, "There are some challenges that needs to be overcome by the banks." Among these, he said, were corporate ratings. All the four credit rating agencies had conveyed that the infrastructure for corporate ratings were in place.

Besides, he said, Indian banks needed to have risk management tools in place, instead of relying on RBI's circulars for the purpose. He said that the RBI, as the regulator, had set up a core team for monitoring banking institutions once the guidelines came into effect.

He said Indian banks had made good progress since 1990, when financial sector reforms were initiated.

Non-performing loans, despite the shift to the 90-day norm, was less than 3 per cent compared to 15 per cent in 1990.

The average capital-to-risk weighted assets of the banking sector was 12.3 per cent currently as against 1996 figure of 8.7 per cent. Moreover, as on December 2006, there were only 25 banks in the country that were short of the prescribed Rs 300 crore net worth; foreign banks incidentally comprised 17 of them, he added.

These banks, he said, had submitted a road map for achieving complying with the net worth guidelines, he added.

He said that the RBI's was attempting to leapfrog India to the electronic payment and settlement system. However, despite the infrastructure provided, usage of the Real Time Gross Settlement (RTGS) was still low.

He said though 28,000 bank branches were equipped with RTGS across 3,200 centres, the actual usage was just about 15,000 transactions per day.

Of these 13,000 transactions were inter bank. Of the remaining 2,000 transactions, 95 per cent of the usage was by foreign banks, he added.

For denominations below rupees one lakh a real time settlement mechanism, through the national electronic funds transfer or NEFT was available.

However, even in this case the number of transactions was just 18,000, since bankers still preferred conventional clearing methods, for "float funds."

He said that the proposed cheque truncation system project with six banks had failed to take off.

"This is a highly complicated project, but we are confident that it can be done." The project was now expected to be finally kicked off from April 1 this year, he added.

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