The government is set to announce the formal launch of the electronic fund transfer (EFT) mechanism soon. This will ease liquidity in the capital markets by facilitating easier transfer of retail funds.
The launch of EFT mechanism was one of the promises made by finance minister Yashwant Sinha in the last budget in an effort to deepen the capital markets. "We will launch it by the middle of this month," said a finance ministry official.
The finance ministry has recently held meetings with the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (Sebi).
While some banks have already introduced EFT, the government's announcement to extend its operation across all banks will facilitate the shorter roll over time of T+3 settlement cycle, scheduled to take effect from April 1.
EFT allows large-scale electronic-based fund transfer across cities for retail customers. Under the system, banks will operate a centralised electronic credit settlement mechanism for both credit and debit. Under EFT, a corporate user or broker can furnish the requisite data at one centre and ask for credit to be disbursed at many other centres. The scheme ensures quick, safe and efficient movement of funds for repetitive small value transactions.
The absence of such a system across the entire banking spectrum was looked upon by Sebi as a major handicap in introducing the T+3 settlement cycle. It had said that brokers were apprehensive that, without the banks allowing such a fast exchange of funds, they would be blocked with large outstanding positions at the end of each cycle.
While Sinha had announced the setting up of such a scheme in the last Budget, the turmoil in the capital markets had put the agenda on the back-burner.
Sources, however, said the introduction of the real time gross settlement system (RTGS), another of Sinha's promises in the last Budget, would not be possible now.
Such a system is currently operational only in Japan and involves creating a queue system within the banking network for brokers' transactions on a real time basis. Sources said, instead, the EFT will mean clearance of all fund transfer advice with a one day lag. They said even that will be a significant leap from the existing procedure.
The apex bank has already brought 15 centres under the EFT network and has introduced centralised funds management system to enable fund managers of banks to obtain a national position of the balance in their accounts with RBI.
