New agency for retail payments envisaged

The government proposes to set up a new National Payments Corporation of India (NPCIL) to take over the operation of retail payment systems in the country.

This corporate entity will be outside the specific regulatory purview, on the lines of the inter-bank government securities and forex clearing systems operated by the Clearing Corporation of India Ltd.

The Payment and Settlement Systems Bill-2006, which provides for the setting up of NPCIL also makes a clear demarcation of functions of the central bank as a service provider and as the regulator.

Asking the house to consider the Bill, Finance Minister P. Chidambaram today said the changes could not have been effected by making an amendment to the Reserve Bank of India Act as the Bill has 38 sections that seek to bring the payments systems in the country in conformity with the global standards.

He added the Bill was referred to a Standing Committee which submitted its recommendations earlier this year. The NPCI will be set up under Section 25 of the Companies Act and will be owned by public sector banks including the State Bank of India.

In India, a host of payment systems are in operation ranging from manual paper-based clearing, to real time gross settlement for non-cash payments.

The various retail systems prevalent also include MICR clearing, electronic funds transfer system, card-based payment systems, government securities clearing and forex clearing among others.

RBI operates and manages paper-based cheque processing in the four metros, while it is operated by public sector banks at 12 other centres but managed by the central bank.

Clearing houses are not legal entities but voluntary bodies of banks, with the rules and regulations being contractual in nature.

The RBI is empowered to make regulations of clearing houses for banks and electronic fund transfers. The procedure of 'netting' is not legally recognised but has been adopted as a working procedure by the clearing house members.

In view of this, the government has considered it necessary to enact a specific legislation which designates RBI as the authority with a number of powers and functions in this regard.

KEY OBJECTS OF BILL

Designates RBI as authority for regulation, supervision of payment systems in India

Gives legal recognition to the netting procedure and settlement finality

Empowers Securities Appellate Tribunals to settle disputes between RBI and system providers