The Hindu Business Line : `India needs world class payment systems'

MR N.R. NARAYANA MURTHY (centre), Chief Mentor of Infosys, with Mr Sean O' Conner (left), Bank of Canada, and Mr Marc Hollanders, Bank of International Settlements, at the international seminar on payment settlement systems in Hyderabad on Wednesday. — P.V. Sivakumar

Hyderabad , Oct. 18

India needs to put in place financial payment systems that are benchmarked with the best in the world in terms of structure, processes and operations, according to Mr N.R. NarayanaMurthy, Chairman and Chief Mentor, Infosys Technologies Ltd.

He suggested the implementation of recommendations made by the Board for Regulation and Supervision of Payment and Settlement Systems (BPSS), so that modes of payment are secure and have risk mitigation measures.

Modern systems

The payment systems in India range from paper-based to the most sophisticated electronic fund transfer systems that offer real-time settlements. Modern payment systems promise to bring in large number of people in the country who have so far been excluded from the benefits of the financial system, he said.

Mr Murthy said payment systems improve financial transparency by bringing in cash into the banking system. Banks can then deploy the additional cash flows to stimulate business growth and consumption, he said, while inaugurating the 3-day, international seminar on Payment and settlement systems, organiaed jointly by the Reserve Bank of India, the Institute for Development & Research in Banking Technology (IDRBT), here and the Bank for International Settlement, Switzerland (BIS).

NCAER study

He quoted a study by the NCAER which said more than 90 per cent of consumer spend is by cash basis— money which never enters the payment systems. McKinsey has estimated that India ranks fourth in the world in terms of currency in circulation, at 11.8 per cent of GDP against the OECD average of 6.3 per cent.

This could be attributed to the fact that more than half of India's economic output is produced by small-scale agriculture and some 44 million household businesses. McKinsey estimates that shifting to electronic payment systems could result in annual saving of close to $6.3 billion, the Infosys Chairman quoted.

Mr Murthy said Government purchase and procurement, pension distribution, credit delivery to small businesses, bill payments, ticket booking, remittances etc. would be major beneficiaries of global payment sytems. He cited the example of the Indian Railway Catering and Tourism Corporation (IRCTC) online ticket booking facility's success of growing from 3,300 ticket booking in 2002 to about 7,50,000 every month online now.

The Infosys Chairman said the payment systems should also have a strong disaster control system designed to mitigate the operational issues, while taking into consideration the behaviour of market participants (banks), and their relative sizes. This was vital, especially after the large-scale disruptions of US financial markets post 9/11, he added.

Earlier, the Director of IDRBT, Mr Arvind Sharma, welcome the gathering and explained the issues that would be discussed. Participants from the RBI, central banks of various countries will discuss the management of payment systems and the reforms in their respective countries.

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