120 banks to be a part of RTGS system by June

The Reserve Bank of India expects 120 scheduled commercial banks and primary dealers to become part of the real time gross settlement system (RTGS) by June 2004.

RTGS is a large value funds transfer system whereby financial intermediaries can settle interbank transfers for their own account as well as for their customers. The system effects final settlement of interbank funds transfers on a continuous, transaction- by-transaction basis throughout the processing day.

The system went 'live' on March 26 with State Bank of India, HDFC Bank, Standard Chartered Bank, and Saraswat Co-operative bank.

By the end of this week, 20 more scheduled banks, including Central Bank of India, Canara Bank, Union Bank of India, Bank of India, Bank of Baroda, Corporation Bank, ICICI Bank, BNP Paribas, will become members of RTGS. By the end of this month, another 20 are expected to come on board.

"We are inducting the financial intermediaries as members of RTGS in a phased manner. By June, all 120 scheduled banks and primary dealers would be part of the system," R Gandhi, chief general manager (information technology), RBI, said at a seminar on "RTGS Challenges", jointly organised by the Indian Banks' Association and Logica CMG.

Pointing out the implications of embracing the RTGS, R B Barman, executive director, RBI, said some traditional products like cash management for corporate customers and traditional money transfer systems among branches may lose their significance. Banks may have to design other innovative offerings for their customers.

Banks, according to Barman, need to be proactive and ensure that RTGS services are offered at more and more branches without adding to interbank reconciliation problems.

"One of the crucial challenges created by RTGS would be the need for banks to ensure that the funds ultimately reach the actual beneficiary. While many banks have already begun addressing the last mile problem, customers would become more demanding and request that the reach and coverage of RTGS be expanded to cover large parts of the country," he said.

Gandhi said the central bank would kick off a pilot project on cheque truncation in Delhi in the next 9-12 months. "We have invited tenders from parties for developing the necessary software for cheque truncation," he said.

Cheque truncation is the process in which the physical movement of cheques is eliminated by creating electronic records of their content for further processing and transmission.

A RBI constituted working group had in September last recommended introduction of cheque truncation in the four metros in the first phase due to the high volume of transactions.

The group, chaired by Barman, had said that once the truncation process was established in these centres, rolling it out at other places would be a relatively easier task.

The statistics of transactions for the month of March 2004 shows that in the interbank market transactions involving 45000 instruments and aggregating Rs 1,79,000 crore were settled. High value instruments (3,17,000) settlement aggregated Rs 2,74,000 crore. However, settlement of MICR instruments (145 lakhs) accounted for only Rs 54,000 crore.

Pointing to the statistics, M P Kothari, regional director, RBI, said the RTGS will eliminate settlement risk in the case of interbank and high value transactions.