Banking Awareness forms an important part of Bank exams. Study our Banking Awareness topics to excel in Bank exams. Overview of Payment Systems in India and NPCI. The points in red color are the most important for exams.
Payment Systems in India and NPCI
- The Board for Regulation and Supervision of Payment and Settlement Systems (BPSS) is the highest policy making body on payment systems in the country. It is a sub-committee of the Central Board of the Reserve Bank of India
- In India, the payment and settlement systems are regulated by the Payment and Settlement Systems Act, 2007 (PSS Act). In terms of Section 4 of the PSS Act, no person other than the Reserve Bank of India (RBI) can commence or operate a payment system in India unless authorised by RBI.
Types of Payment System:
Payments System can be classified as: 1. Paper Based Payment 2. Electronic Payment
Paper Based Payment- it includes cheques and demand drafts. These accounts for nearly 60% of the volume of total non-cash transactions in the country. In value terms, the share is presently around 11%.
Electronic Payment– This includes electronic mode of payment system. It includes
- Electronic Clearing Service (ECS- Credit and Debit)- ECS facility handles bulk and repetitive payment requirements (like salary, interest, dividend payments) of corporates and other institutions.
ECS Debit- Multiple Debit, Single Credit.; ECS Credit- Multiple Credit, Single Debit.
- National Electronic Funds Transfer (NEFT)- NEFT system is a fund transfer mechanism having batch settlements at half-hourly intervals, thus enabling near real-time transfer of funds. It is available on 24×7 basis in India.
- Real Time Gross Settlement (RTGS)System– RTGS is a funds transfer systems where transfer of money takes place from one bank to another on a “real time” and on “gross” basis. Settlement in “real time” means payment transaction is not subjected to any waiting period. “Gross settlement” means the transaction is settled on one to one basis without bunching or netting with any other transaction. Minimum limit- Rs 2 lakhs. It is available on 24×7 basis in India.
- Clearing Corporation of India Limited (CCIL)– Setup in 2001 by banks, financial institutions and primary dealers, to function as an industry service organisation for clearing and settlement of trades in money market, government securities and foreign exchange markets.
The Clearing Corporation plays the crucial role of a Central Counter Party (CCP) in the government securities, USD –INR forex exchange (both spot and forward segments) and Collaterised Borrowing and Lending Obligation (CBLO) markets.
CCIL plays the role of a central counterparty whereby, the contract between buyer and seller gets replaced by two new contracts – between CCIL and each of the two parties. This process is known as ‘Novation’. Through novation, the counterparty credit risk between the buyer and seller is eliminated with CCIL subsuming all counterparty and credit risks.
National Payments Corporation of India
National Payments Corporation of India (NPCI), an umbrella organisation for operating retail payments and settlement systems in India. It was formed as an initiative of Reserve Bank of India (RBI) and Indian Banks’ Association (IBA) under the provisions of the Payment and Settlement Systems Act, 2007.
Objective: NPCI has been incorporated as a “Not for Profit” Company under the provisions of Section 25 of Companies Act 1956 (now Section 8 of Companies Act 2013), with an intention to provide infrastructure to the entire Banking system in India for physical as well as electronic payment and settlement systems.
Promoters of NPCI: There are 10 core promoter banks of NPCI- State Bank of India, Punjab National Bank, Canara Bank, Bank of Baroda, Union Bank of India, Bank of India, ICICI Bank, HDFC Bank, Citibank N. A. and HSBC. In 2016 the shareholding was broad-based to 56 member banks to include more banks representing all sectors.
Headquarters of NPCI: Mumbai, Maharashtra
Developments by NPCI
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Reserve Bank of India undertakes the Oversight function of the payment and settlement systems in the country.
More about NPCI and its services will be discussed in subsequent posts.