The Hindu Business Line : RBI paper moots single clearing entity for retail

A vision document for 2005-08 released by the Reserve Bank of India suggests that the central bank should offload its clearing operations to a separate legal entity and focus on being a settlement institution for all clearing systems, apart from its regulatory and supervisory functions.

The document says that setting up an all-India entity to operate all retail payment systems can considerably reduce the operational drawbacks and free RBI from operational functions.

A senior official with a leading public sector bank said the proposal of RBI shedding the clearing function would help the central bank focus on other core areas of concern.

"Already, in a lot of places, commercial banks have taken over clearing operations. Efficiency of the system is a must and this would be a prudent move on the part of the RBI," the bank official said.

According to the RBI document, a single entity for running all clearing activities will ensure uniformity in structure, operations and procedures.

Practices impeding safety, security and efficiency in the functioning of the clearing operations will be effectively neutralised.

The single entity will help deploy professionally competent and suitably trained personnel to manage and run clearing operations.

It will create a conducive environment for bringing out innovative products.

It also will facilitate the option of conducting all clearing at the national level, leading to better information dissemination and customer education on various payment services and systems.

The system will also have an effective customer redressal mechanism, the document says.

The vision document also recommends the hiving off of the `negotiated dealing system' from the RBI and advises the central bank to establish a national settlement system.

Keeping in view the possibility of dishonour of non-negotiable payment instructions on the due date, the legal action to be taken against the defaulters has to be addressed.

These types of instructions, not being instruments, are not covered under the existing laws.

Therefore, it is proposed that the Payment and Settlement Systems Bill should be enacted during 2005-08.

Regulations for authorised payment and settlement systems to be framed and electronic fund transfer regulations should be notified.

The process of legislation for credit transfer transactions must be initiated and draft provisions for bringing non-negotiable, non-instrument based instruction type payment products such as ECS (debit) should be examined.

The document says that since cheques continue to be the dominant retail payment instruments, during the currency of the new vision document, cheque truncation will be operationalised in the four metros and some of the other major cities such as Bangalore and Hyderabad where there is high bandwidth availability.

Cheque truncation was introduced to quicken the realisation of proceeds of cheques. On a long-term basis, a national centre for clearing route intercity cheques through this single hub to offer customer credits on a T+1 or even T+0 basis should be set up.

The document suggests that a requisite environment and infrastructure for end-to-end straight through processing (STP) from the customers' to the banks' end should be created.

Initiatives such as allowing customers to upload and download their transactions files in a secure environment, standardisation of account numbers, standard message format framework for banking applications are some of the other initiatives to ensure that STP becomes an industry practice.

More Stories on : Financial Policy | RBI & Other Central Banks

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
RIL board meeting - what's in store?

Reliance Infocomm raises $750 m in loan deal

Auto components, consumer electronic sectors worried — Thai FTA: Favourable tax regime sought

APEDA stamp for meat exports mandatory

RBI paper moots single clearing entity for retail