The document discusses India's payment systems. It outlines the key regulatory bodies that oversee payment systems in India. It then describes various paper-based and electronic payment methods in India such as cheques, NEFT, RTGS, IMPS, and prepaid payment systems. It also discusses the settlement system operator Clearing Corporation of India and features of the Cheque Truncation System. The document provides details on processing times, charges and limits for different payment methods in India. It concludes by noting some limitations of India's payment systems including the lack of standardized account numbering across banks.

1. Payment Systems
ABHIJEET DESHMUKH
www.abhijeetdeshmukh.com

2. Introductions
 The central bank of any country is usually the driving force in the development
of national payment systems
 The Board for Regulation and Supervision of Payment and Settlement Systems
(BPSS), a sub-committee of the Central Board of the Reserve Bank of India is
the highest policy making body on payment systems in the country
 the Payment and Settlement Systems Act, 2007 (PSS Act) which was legislated
in December 2007 which regulates Payment and Settlements in India
 No person other than the Reserve Bank of India (RBI) can commence or operate
a payment system in India unless authorized by RBI.

3. Payment System
Paper-based Payments
 Use of paper-based instruments (like cheques, drafts, and the like) accounts
for nearly 60% of the volume of total non-cash transactions in the country.
 In value terms, the share is presently around 11% and
 Both Volume and Value are declining steadily with emergence of electronic
platform.
 For Paper based Payments, Reserve Bank had introduced Magnetic Ink
Character Recognition (MICR) technology; then High Value Clearing was
introduced; post which launch of Speed Clearing and recently Cheque
Truncation System (CTS) - 2010 was launched
 the overall RBI’s thrust is to reduce the use of paper for transactions

4. Electronic Payments
 The initiatives taken by RBI in the mid-eighties and early-nineties focused on
technology-based solutions and for the improvement of the payment and
settlement system
 RBI introduced the Electronic Clearing Service (ECS) (Credit) scheme during the
1990s
 September 2008, the Bank launched a new service known as National Electronic
Clearing Service (NECS), at National Clearing Cell (NCC), Mumbai.
 Regional ECS (RECS) has been launched during the year 2009.
 Post which, Electronic Clearing Service (ECS) Debit was introduced by RBI to provide
a faster method of effecting periodic and repetitive collections of utility companies.
 Real Time Gross Settlement (RTGS)System was introduced in 2004 and settles all
inter-bank payments and customer transactions above Rs 2 lakh.
 November 2005, a more secure National Electronic Funds Transfer (NEFT) system
was introduced for facilitating one-to-one funds transfer requirements of individuals
/ corporates.

5. Other Payment Systems
 Pre-paid Payment Systems
 facilitate purchase of goods and services against the value stored on these instruments.
 Instrument can be smart cards, magnetic stripe cards, internet accounts, internet wallets,
mobile accounts, mobile wallets, paper vouchers and Forex prepaid cards as allowed under
FEMA etc.
 Mobile Banking System
 Mobile phones as a medium for providing banking services
 Reserve Bank brought out a set of operating guidelines on mobile banking for banks in
October 2008 for those banks which are licensed and supervised in India and have a physical
presence in India
 ATMs / Point of Sale (POS) Terminals / Online Transactions
 As per RBI, ATM/POS Oct 2015 Data, there are over 2 lakhs ATMs in India & over 12.36 lakhs
POS terminals in the country, which enable customers purchases of goods and services by
means of credit/debit cards. The online payment are enabled through own payment gateways
or third party service providers. For Online Card Not Present (CNP) transactions, RBI mandated
that all CNP transactions should be additionally authenticated based on information not
available on the card and an online alert should be sent to the cardholders for such
transactions.

6. Settlement System
Clearing Corporation of India Ltd (CCIL)
 CCIL was set up in April 2001 by banks, financial institutions and primary dealers, to
function as an industry service organization for clearing and settlement of trades in money
market, government securities and foreign exchange markets.
 It plays the crucial role of a Central Counter Party (CCP) through ‘Novation’ in the
government securities, USD –INR forex exchange (both spot and forward segments) and
Collaterized Borrowing and Lending Obligation (CBLO) markets.
 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’.
 CCIL follows specific risk management practices which are as per international best
practices.
 CCIL provides non guaranteed settlement services for National Financial Switch (Inter bank
ATM transactions) and for Rupee derivatives such as Interest Rate Swaps.
 CCIL is also providing a reporting platform and acts as a repository for Over the Counter
(OTC) products.

7. Cheque Truncation System (CTS)
 As per the Negotiable Instruments Act, every cheque is required to be presented
to the drawee (paying) bank for payment
 In the good old days, cheques deposited by customers used to be presented by
the collecting bank to the paying bank over the counter of the latter and thus
collect the amount due from each bank
 Over a period of time, with the growing use of cheques by the trading
community, banks devised a system of meeting in a central place and exchange
the cheques drawn on one another and thus settle the net amount due to each
bank through the institution called a “clearing house”
 A number of clearing houses were set up in different cities for clearing of
cheques through the manual operations for a number of years.

8. Magnetic Ink Character Recognition
 Magnetic Ink Character Recognition (MICR) format for sorting of cheques
 These are machine-readable codes added at the bottom of every cheque leaf
which helped in bank and branch-wise sorting of cheques for smooth delivery to
the respective banks on whom they are drawn.
 For example, if you have an account with Axis Bank, New Delhi (Defence Colony)
then its nine digit
MICR code will be 110 211 004 where:
 110, the first three digits representing the city code for New Delhi;
 211, the next three digits representing the bank code for Axis bank;
 And 004, the last three digits representing the bank branch code for Defence Colony.

9. Cheque Truncation System (CTS 2010)
 CTS 2010 is the standard prescribed by the RBI recently for cheques issued by all
banks in the country.
 CTS stands for Cheque Truncation System and essentially means that instead of
sending the cheque in physical form by the collecting bank to the paying bank, an
electronic image of the cheque is transmitted to the drawee branch for payment
through the clearing house,
 It has eliminated the cumbersome physical presentation of the cheque to the paying
bank, thus saving in time and costs involved in traditional clearing system.
 This was introduced as a pilot project in the National Capital Region in 2008 and in
Chennai from September 2011. Based on the experience gained and the benefits that
will accrue to both banks and customers, it is decided to operationalize CTS across
the country.
 It is proposed that the cheque clearing would be centralized into four grids, in four
centres, North, South, East and West, and all the existing clearing houses across the
country will be linked to these CTS grids in due course of time.

10. Benefits of CTS 2010
 The main feature of the CTS 2010 cheque is that the physical movement of the
cheque is stopped thus speeding up the process of cheque clearance and
settlement between banks. This obviously means quicker clearance, shorter
clearing cycle and speedier credit of the amount to your account.
 there is no fear of loss of cheques in transit, mishandling and reduce the scope
for perpetuation of frauds inherent in paper instruments etc are totally avoided.
Thus it is more secure now.
 cheques drawn on remote bank braches now can be cleared electronically
without any geographical restrictions.
 CTS standards 2010 has embedded verifiable features like bar codes, encrypted
codes, logos, watermarks, holograms, etc in every cheque leaf, it is now possible
to detect frauds easily
 The CTS is expected to improve operational efficiency of the entire banking
system, resulting in better customer service, improved liquidity position for
banks’ customers and safe and secure banking for the entire banking public.

11. CTS-2010 Tips
 To ensure fraud-free cheque clearance, RBI has advised that customers should preferably
use dark colored ink while writing cheques
 avoid any alterations or corrections thereon
 For any change in the payee’s name, amount in figures or in words, fresh cheque leaves
should be used by customers, as this will facilitate smooth passage through image based
clearing system.

12. RTGS
 'RTGS' stands for Real Time Gross Settlement
 'Real Time' means the processing of instructions at the time they are received
rather than at some later time;
 'Gross Settlement' means the settlement of funds transfer instructions occurs
individually (on an instruction by instruction basis)
 the funds settlement takes place in the books of the Reserve Bank of India,
 The payments are final and irrevocable.
 This is the fastest possible money transfer system through the banking channel.
 The minimum amount to be remitted through RTGS is Rs 2 lakh. There is no
upper ceiling for RTGS transactions.

14. RTGS
 Information to a bank for initiating a RTGS remittance:
 Amount to be remitted
 Remitting customer’s account number which is to be debited
 Name of the beneficiary bank and branch
 The IFSC Number of the receiving branch
 Name of the beneficiary customer
 Account number of the beneficiary customer
 Sender to receiver information, if any
 As per latest RBI’s Monthly Volume of RTGS (Dec 2015)
 Volume – 80,24,735
 Value (in Rupee Billion) – Rs 68,924.04

15. Benefits of RTGS
 Lower cost of transaction of RTGS/NEFT as compared to cost of transaction and
remittance through draft
 Draft Issue to Payment – long process, cancellation, duplicate draft issue,
revalidation, IOR issues, frauds, Staff accountability. All above are addressed in
RTGS
 Customer Benefit – Immediate credit
 Low transaction time, no printing, shorten the queues
 Drafts will be phased out in the coming years
 It is the platform for Inter-bank payment has slowly replaced the High Value Paper
based clearing totally.

16. Indian Financial System Code (IFSC)
 The IFSC is an 11-character code
 It is used for both RTGS and NEFT Payment.
 For e.g. ICICI Bank, Bandra East, Mumbai
ICICI 0 000555
 first four alphabetic characters representing the bank name, and
 the last six characters (usually numeric, but can be alphabetic) representing the
branch
 The fifth character is 0 (zero) and reserved for future use.

17. UTR
 UTR is Unique Transaction Reference number that is generated in RTGS system
for uniquely identifying any transaction.
 The format of UTR is predefined and is generated by the bank initiating the
transaction.
The format is: XXXX A YY DDD 999999
 Where XXXX is the bank code of bank who has initiated the payment. For e.g.
SBI's bank code is SBIN.
 A is the system identifier. The possible values are
 'P' - for transactions generated in RTGS interface/application or
 'H' - for transactions generated in Bank's host system,
 YY is two digit year. 10 for 2010.
 DDD is Julian date. 032 for Feb 1 0r 365 for December 31st.
 999999 is 6 digit sequence number.

18. NEFT
 The acronym “NEFT” stands for National Electronic Funds Transfer.
 Funds are transferred to the credit account with the other participating Bank.
 RBI acts as the service provider and transfers the credit to the other bank's
account using it's NEFT service
 NEFT operate on a Deferred Net Settlement (DNS) basis which settles
transactions in batches.
 In DNS, the settlement takes place at a particular point of time. All transactions
are held up till that time
 There is no minimum or maximum limit on the amount of funds that can be
transferred.
 It is not restricted to any particular geographical area within India, given that a
bank branch should be NEFT enabled.

19. RTGS Timings

20. Processing Charges/Service Charges
Amount Service Charge
RTGS From Rs.2 lakh upto Rs.5
lakh
Not exceeding Rs 30/-
Rs. 5 lakh & above Not exceeding Rs 55/-
NEFT Upto Rs.1 lakh Rs.5/-
Rs.1 lakh & 2 lakh and
above 2 lakh
Rs.15/- maximum
Rs 25/- maximum
Inward transactions charges for RTGS/NEFT– Free, no charge to be levied

21. IMPS
 IMPS stands for Immediate Payment Service (IMPS)
 This fund transfer service allows customers to instantly transfer money online or
from mobile phones using their registered mobile number, including bank
holidays.
 IMPS can also be used to receive or transfer funds using beneficiary registered
Money Mobile Identifier (MMID) or account number and branch IFSC code.
 This service is available 24x7 with immediate confirmation of transaction.
 MMID can be generated immediately through online banking platform.
 The maximum limit for IMPS is Rs 2,00,000 per day.
 IMPS facility is available only for IMPS live member banks

22. Criteria IMPS NEFT RTGS
Recommended when When you want to
transfer funds
immediately at any time
of the day
When fund transfer is
scheduled, planned
and/or when you wish to
place a standing
instruction
When you want to
transfer funds of higher
value with minimum delay
Availability 24X7 – Round the clock
Available on Sundays and
Bank holidays too
Weekdays: Same day
credit till 5:30 pm
Saturdays: Same day
credit till 11:30 am
Sundays & Bank holidays:
credit on next working
day
Weekdays: Same day
processing till 3:30 pm
Saturdays: Same day
processing till 11:30 am
Sundays & Bank holidays:
Processing on next
working day
Speed of Transfer Instant credit to
Beneficiary Account
within a few seconds
Credit to Beneficiary
account in batches,
depending on day of the
week
Weekdays & Working
Saturdays*: Same day
credit till 5:30 pm
Sundays & Bank holidays:
credit on next working
day
Credit to Beneficiary
account in batches,
depending on day of the
week:
Weekdays & Working
Saturdays*: Same day
processing till 3:30 pm
Sundays & Bank holidays:
Processing on next
working day
Transaction Service
Charges
Free Free Free

23. Daily transaction Limit Upto INR 2,00,000 No Limit Minimum transfer
amount: INR 2,00,000
Channels Fund transfer can be
initiated from
• Online
• Mobile
• SMS
• ATMs
Fund transfer can be
initiated from
• Online
• Mobile
• Bank Branches
Fund transfer can be
initiated from
• Online
• Branches
Beneficiary Details
required
Funds can be
transferred to the
beneficiary basis their
• Bank Account No.
and IFS Code
• Mobile No. and
MMID (Mobile Money
Identifier)
Funds can be
transferred to the
beneficiary basis their
Bank Account No. and
IFS Code
Funds can be
transferred to the
beneficiary basis their
Bank Account No. and
IFS Code
Criteria IMPS NEFT RTGS

24. Limitation of India Payment System
 Indian banking system suffers from some defects due to certain socio-cultural
factors which hampers the spread of the e-payments culture & relatively small
percentage of the population pays their bills electronically reflecting in paper-
based instruments (like cheques, drafts, and the like) which accounts for nearly
60% of the volume
 Currently, there is no standardization of account numbers across all banks. Each
bank follows a different method of maintaining account numbers, ranging from
10 digits to16 digits causing confusion to bank customers
 Besides, there is no uniformity in respect of routing codes presently used by
banks. For instance, the MICR code is used for electronic clearing services (ECS),
Indian Financial System Code (IFSC) is used for National Electronic Funds Transfer
(NEFT) and Real Time Gross Settlement Systems (RTGS), and Basic Statistical
Return codes are used for identification of a branch of a bank.

25. SWIFT
 SWIFT stands for Society for Worldwide Inter bank Financial Telecommunication
 The transaction mainly depends on international standards and through a unique
code provided to each bank known as the Swift Code.
 Swift Code is a standard format of Bank Identifier Codes (BIC) and it is unique
identification code for a particular bank.
 These codes are used when transferring money between banks, particularly for
international wire transfers.
 It comprises of a world wide network where messages related to financial
transactions is being exchanged among banks and other financial institutions
electronically
 For sending out money, you must have the Beneficiary full name, Bank Address
and Swift and Beneficiary Account Number

26. Benefits of Swift
 It is a safe and reliable way to send and receive money worldwide.
 It has no upper limit for the transaction amount.
 You are allowed to issue money transfers in all major foreign currencies.
 It processes the transaction very fast.
 It can issues money transfers on a periodic basis with the help of standing
instruction.
 The fees differ with the amount.
 Messages on SWIFT are encrypted
 It does not hold any account for its member nor perform any form of Clearing or
Settlement

27. SWIFT Code
 The Swift code consists of 8 or 11 characters. When 8-digits code is given, it refers
to the primary office. The code formatted as below;
AAAA BB CC DDD
 First 4 characters - bank code (only letters)
 Next 2 characters - ISO 3166-1 alpha-2 country code (only letters)
 Next 2 characters - location code (letters and digits) (passive participant will have "1" in
the second character)
 Last 3 characters - branch code, optional ('XXX' for primary office) (letters and digits)
e.g. ICIC IN BB 005
ICICI Bank, Pune SWIFT Code

28. SWIFT – Latest Statistics

29. SWIFT – Latest Statistics

30. Thank You