The Reserve Bank of India participates in the payment systems as a user of the system, as the service provider for various components of the systems and is also the regulator of the systems in many instances.
As a user, the RBI submits instruments for clearing in the cheque-based clearing operations. RBI also participates as a user in the Electronic Clearing Service (ECS)and EFT systems for making its own internal payments to its employees, vendor payments etc. Similarly, RBI transactions in Repo / Reverse Repo under LAF, Open Market Operations etc., would also be settled through the respective components of payment systems.
As a provider of payment system services, the RBI has taken many initiatives as can be seen under the evolution of payment systems in the country in the development and operationalisation of the systems. Under this, the clearing houses and ECS systems are managed by the Reserve Bank of India at 16 and 15 centres respectively and EFT systems are completely managed by RBI at the 15 centres. The CFMS, NDS/SSS and RTGS systems have been fully developed, operationalised and maintained by RBI. Besides the above, RBI (through IDRBT) has also provided the communication back bone to the financial system in the country in the form of Indian Financial Network (INFINET).
By way of being the central bank, the RBI derives regulatory powers in certain jurisdictions of payment systems. However, specific oversight powers for payment systems for RBI is sought to be obtained through appropriate legislation in the form of the Payment Systems Legislation and the setting of Board for Payment and Settlement Systems.
Moving from a technology-based solution towards issues of Payment and Settlement Systems, the Reserve Bank of India has adopted a holistic approach, in which Information Technology is an integral component. In order to usher in and establish a modern, robust payments and settlement system consistent with international best practices, the Reserve Bank has adopted a three-pronged strategy of Consolidation of existing Payment Systems, Development of Payment Systems and Integration of the Payment and Settlement System.
In order to drive this Payment System reform process an institutional framework and structure has been created within the Reserve Bank. The base layer of this structure consisted of the Payment Systems Group, which included an exclusive team of inter-disciplinary professionals representing IT, Banking Operations, Supervision, Legal, Economics, Government & Bank Accounts, and Foreign Exchange operations. The Group focused on the System Design of an integrated payments system, Payment Instruments, Electronic Banking systems, Clearing and settlement arrangements, technological infrastructure, legal issues, Monetary Policy implications, Change management and responsibilities of banks. The Group was disbanded in December 2002.
The next tier in the institutional framework is the Payment Systems Advisory Committee which is a permanent body and oversees the operations of the Payment Systems Group and reviews the developments in the area of Payment Systems.
The apex layer in the institutional structure is the National Payments Council. The council lays down the broad policy framework and guidelines for the implementation of a sound and efficient payments and settlement system for the country. The NPC is chaired by the Deputy Governor in charge of the Department of Information Technology and represented by the Executive Director-in-Charge of the Department of Information Technology, Chairman of the Indian Banks Association, Joint Secretary, Banking Division, Ministry of Finance, Chairmen and Managing Directors of two Public Sector banks, one Private bank, a Nonbanking financial company, Securities Exchange Board of India and the National Stock Exchange. The National Payments Council is assisted by five permanent Task Forces, each of which is headed by a member of the National Payments Council and comprises of a few experts appointed by the Chairman from different disciplines / institutions. It is assisted by the respective Head of the Department concerned within the Reserve Bank. These are the:
- Task Force on Monetary Policy and related issues;
- Task Force on Payment and Settlement Systems Oversight;
- Task Force on Legal Issues;
- Task Force on Technology Related Issues;
- Task Force on Systems and Procedures related issues.