RBI amends payment and system settlement,2022

Last Updated On: March 26, 2022, 10:04 p.m.


Reserve Bank of India, the central bank of India plays a crucial role in developing various payment systems which are safe, secure, efficient, and authorized in India. In India, ‘paper-based payments’ have been rapidly replaced by ‘electronic payments’. These types of payments have formed an integral part of the payment system not only in India but globally. Now people make payments through digital platforms such as Debit cards, Credit Card, Prepaid Payment Instruments, Mobile Banking, etc. for paying bills, transferring any money or for shopping. The use of cheques is always used by every individual and these type of instruments made more secure payments from one person to another. The use of National Electronic Funds Transfer (NEFT) and Real-Time Gross Settlement (RTGS) was introduced for fast payments which reduced the use of paper-based instruments to a certain extent.  Since then, Reserve Bank has authorized payment operators of prepaid payment instruments, card schemes, and centralized clearing arrangements. Initiatives taken by the Reserve Bank of India resulted in the deeper acceptance of non-cash payment modes.


What are the payments system in India?



The electronic based technology for improving the payment and settlement system infrastructure was initiated by RBI in the mid-eighties and early nineties. Various payment schemes which is initiated by RBI for cost effective alternative system are as follows-

i. Electronic Clearing Service (ECS) Credit – This scheme was introduced in the year 1990s for handling the huge and repetitive needs of corporates and various other institutions (for e.g. paying salary, interest, dividends). It manages accounts which needs to be credited on a specified date and is now available in all major citizens. In the year 2008, the bank introduced new service which is known as National Electronic Clearing Service (NECS) at National Clearing Cell (NCC) situated in Mumbai. It manages the various credits to beneficiary accounts with destination from several branches across the country which is against the single debit of the sponsor bank. It also has a system of pan-India features on Core Banking Solutions (CBS) of member banks.


ii. Electronic Clearing Service (ECS) Debit – This scheme was introduced by RBI to provide a quick method of repetitive collections of utility corporations. It manages subscribers of such company for making routine payments by instructing their bank branches to debit and transfer the money. Due to this way of scheme it reduces the use of paper instruments and also brings efficiency as well as customer satisfaction. No prescribed limit is stated for the amount of payment. It is widely available across the country. There is also another service which is known as Regional Electronic Clearing Service (RECS) under which the sponsor bank uploads the data through web server of RBI containing the directions to the customer of CBS. Further this scheme will arrive at the settlement and will generate bank-wise reports and will be made available through the webserver to manage the bank branches to either credit or debit the account of the beneficiaries.

iii. National Electronic Funds Transfer (NEFT) – There was a need for a more secure payment system for managing one-to-one funds transfers of individuals, corporates, etc. In the year 2005, NEFT system was provided for making settlements at hourly intervals making the payment faster and secured. It allows accepting cash for originating transactions, initiating requests to transfer money without any specified limit, also receiving the confirmation of the time of credit to the account of the receiver. This system replaced the Electronic Funds Transfer (EFT) which allowed the account holder of the bank to transfer funds electronically to another holder with any other bank across the country.

iv. Real Time Gross Settlement (RTGS) – It is a type of system where a transfer can be done from one bank to another on a ‘real time and ‘gross’ basis. It means payment is not respect to any waiting time and transactions are settled on one to one basis making it irrevocable once it is processed. It settles inter-bank payments and transactions above 2 lakh.

v. Clearing Corporation of India Limited (CCIL) – It was set up by banks, institutions in 2001 for functioning as a service organization for settlement in the money market, foreign exchange and securities. It plays a crucial role of central counterparty where contracts between seller and buyer get replaced and two new contracts are made i.e. between CCIL and each party. This process is called Novation where the credit risk between seller and buyer is removed with Clearing Corporation of India which follows specific risk management. Some of the corporations is National Commodity Clearing Ltd., Metropolitan Clearing Corporation of India Ltd.



Paper-based instruments such as cheques, drafts, etc. are nearly 60% in volume of total non-cash transactions. The share started gradually decreasing over a period of time and various electronic modes of payments which gained popularity because of the efforts taken by the Reserve Bank of India for popularizing the electronic mode in preference to cash and cheques. Magnetic Ink Character Recognition (MICR) for efficiently processing of cheques was introduced because cheques have an important place in India. Although the overall thrust is to reduce the paper based transactions, it would take some time for completely shifting to electronic modes because of various factors one of which is the citizens rely much on paper based transactions and using it as mode of payment brings more trust and many people in the country find it difficult to use such electronic mode.




The Indian financial regulatory was doing various analysis in the year 2008-2010 because it released a various sets of measures, to develop electronic payments in India. The payment and settlement systems which are regulated by the Payment and Settlement Systems Act, 2007 was legislated in December 2007. Further, the Payment and Settlement System Regulations, 2008 which was framed and these both act came into effect from August 12, 2008. A sub-committee of Reserve Bank of India known as the Board for Regulation and Supervision of Payment and Settlement Systems (BPSS) is the policy-making body on various payment systems in the country. Its role is for authorizing, prescribing policies for regulating and managing the payment and settlement systems in the country. The Department of Payment and Settlement Systems of the Reserve Bank of India execute the directions which are given by the Board. The Payment and Settlement System Act, 2007 is made for regulating the payment and settlement system in India, where under Section 4 it is stated that no person other than the Reserve Bank of India (RBI) can operate a payment system in India except approved by RBI




As stated above, after being authorized by the Reserve Bank of India any person can operate a payment system in India fulfilling all the necessary procedures as required by RBI. The procedure is as follows –

a. A person needs to apply by making an application [4]for authorization to Reserve Bank in the manner prescribed in the Payment and Settlement Systems Act, 2007 and along with fees which may be prescribed.

b. After the application is received, the Reserve Bank may make all the necessary inquiries [5]for satisfying the genuineness of the particulars which is submitted by the applicant. A person who will be authorized by Reserve Bank for conducting this inquiry may require to prepare a report where all the information which is required should be written along with the capacity of the applicant to operate the payment system.

c. The RBI may, if satisfied with all the inquires as per the Act, issue an authorization for operating having regard to the considerations [6]which is the need for payment system or the services proposed, the technical standards, the terms and conditions of operation including security procedure, the manner transfer of funds will be achieved, the procedure for payment instructions under payment system, the financial status of the applicant, interest of consumers which includes their relationship with payment system providers, policies of monetary and credit, any other elements which may be relevant by the RBI.

d. Further, the authorization issued by RBI shall be in the form prescribed which will include the date when it takes effect, the conditions, specify the payment of any fees if pending, if felt necessary, to furnish security for proper conduct, to be in force until the authorization is withdrawn.

e. RBI can also refuse the application by giving a written notice along with reasons. Also, before such application is refused the applicant is given an opportunity of being heard. Every application shall be managed by Reserve Bank and disposed the application within six months from the date of filing.


Notification No. CO. DPSS. Ovrst. No. S1417/06.08.001/2021-22.—In exercise of the powers conferred by sub-section (1) read with clauses (b) to (f) of sub-section (2) of Section 38 of the Payment and Settlement Systems Act, 2007 (51 of 2007), the Reserve Bank of India hereby makes the following amendment to the Payment and Settlement Systems Regulations, 2008 namely –

1. Short Title & Commencement

(i) These Regulations may be called the Payment and Settlement Systems (Amendment) Regulations, 2022.

(ii) They shall come into force on the date of their publication in the Official Gazette.


2. Amendments In the Payment and Settlement Systems Regulations, 2008,

(i) In Regulation 5, the word “system provider” shall be substituted with “system participant”



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