Assignment on r.t.g.s. by Roni Rundlett

8/3/2019 Assignment on r.t.g.s. by Roni Rundlett

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ACKNOWLEDGEMENTAt the very outset I would like to express my sincere thanks and gratitude to Mrs.

Shweta Bagaria Sarawagi, Senior Accounts Officer-G.M.O.-E.Z., for her Guidance,

Support, Encouragement and Suggestions during my internship training in Hindustan

Petroleum Corporation Limited.

My special thanks to Mrs. Archana Agarwal DGM-Finance and Mr. K.R.Ramesh,

DGM-Finance who could lend me their precious time during my internship. Along with

it I would like to thank my college guide Prof. Dr. Atish Prosad Mondal who stood next

to me time to time and gave me his helping hand in finishing my project.

Last but not the least, I would like to offer my sincere gratitude to all officers & staffs of

the General Managers Office, Eastern Zone situated at 6,Church Lane, Kolkata-700001,

all employees of the Kolkata Retail Outlet at Camac Street, Kolkata the BudgeBudge

Refinery & Lubricant Plant at BudgeBudge for their kind help .

For any error that remains, I off course stand personally responsible.

-RONI RUNDLETT


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TABLE OF CONTENTS

INTRODUCTION TO REAL TIME GROSS SETTLEMENT 3-5Objective of the study 6Scope of the study 7Key factors about r.t.g.s. 10-14Interface of r.t.g.s. with other systems 15Indian scenario- r.t.g.s. 16Types of r.t.g.s. transactions 17Liquidity factor of r.t.g.s. 18-19Steps involved in r.t.g.s. transactions 20-22Backdrop of Hindustan petroleum corporation ltd. 23Infrastructure-Hindustan petroleum corporation ltd. 24Analysis of the method of functioning of h.p.c.l 25-29Research methodology 30Summary of findings 31Current situation of transaction systems 32-33Conclusion 34Bibliography 35


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An introduction to RTGS system.....

RTGS stands for Real Time Gross Settlement. RTGS system is a funds transfer mechanism

where transfer of money takes place from one bank to another on a real time and on gross

basis. This is the fastest possible money transfer system through the banking channel.

Settlement in real time means payment transaction is not subjected to any waiting period.

The transactions are settled as soon as they are processed. Gross settlement means the

transaction is settled on one to one basis without bunching with any other transaction.

Considering that money transfer takes place in the books of the Reserve Bank of India, the

payment is taken as final and irrevocable.

The RTGS system is primarily for large value transactions. The minimum amount to be

remitted through RTGS is Rs. 1 Lakh. There is no upper ceiling for RTGS transactions. No

minimum or maximum stipulation has been fixed for NEFT transactions.

Under normal circumstances the beneficiary branches are expected to receive the funds in

real time as soon as funds are transferred by the remitting bank. The beneficiary bank has to

credit the beneficiarys account within two hours of receiving the funds transfer message.

RTGS will eliminate settlement risk in the case of interbank and high value transactions.

Banks could use balances maintained under the cash reserve ratio (CRR) instead of

the intra-day liquidity (IDL) to be supplied by the central bank for meeting any

eventuality arising out of the real time gross settlement (RTGS). The RBI has fixed the

IDL limit for banks to three times their net owned fund (NOF).The IDL will be charged

at Rs 25 per transaction entered into by the bank on the RTGS platform. The marketable

securities and treasury bills will have to be placed as collateral with a margin of five per


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cent. However, the apex bank will also impose severe penalties if the IDL is not paid

back at the end of the day. The system has also stabilised over the years and has been

witnessing increased coverage in terms of bank branches and transaction volume. The

volume of RTGS (Real Time Gross Settlement System) transactions is increasing rapidly.

RTGS settled 1.94 million transactions in the month of March 2009 as against 0.72

million transactions in March 2008. Customer transactions settling in RTGS presently

constitute 89 percent of total RTGS transactions and are growing.

The RTGS system implemented by the Reserve Bank has been in operation for more

than four years. The system has also stabilised over the years and has been witnessing

increased coverage in terms of bank branches and transaction volume. The volume of

RTGS (Real Time Gross Settlement System) transactions is increasing rapidly. Reserve

Bank of India reviewed the entire gamut of RTGS customer transactions with a view to

making them more users friendly. Based on these discussions, the following decisions

have been taken for implementation by RTGS memberbanks latest by June 01, 2009.

1. It is triturated that in a Straight Through Processing (STP) environment,

standardization is very much necessary and uniformity in message format is a pre

requisite for the success of STP.

2. RTGS Customers have been complaining that there is no uniformity on information

provided to the customer in the pass books / account statements by different banks.

Some banks merely indicate `RTGS credit without details while other banks are giving

sender's bank account number or UTR number of the transactions etc. Customer is

receiving multiple RTGS credits on a given date, is at a loss to understand the source of

funds leading to reconciliation issues.RBI has therefore, and advised that


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a) A bank customer receiving RTGS credit shall be provided with the name of the

remitter in his account statements /pass book.

b) A bank customer sending a RTGS remittance shall be provided with the name of the

beneficiary in his account statements / pass book. The banks are free to provide any

additional information as they deem necessary / useful.


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Objective of study.....With the advancement of technology the company is trying to switch over to RTGS for receiving

payments from them. This system is advantageous for the company in many ways. They are

it ensures better mobility of the funds of the company It reduces the time lag between the receipt of the instrument and the crediting of the bank

account of the company.

It reduces the risk factor of a default in payment by the payers as there are no chances ofdishonour in this mode.

RTGS is a cost-effective method of collecting payments. Thus it lowers the expenditures of thecompany.

At present 60% of Hindustan Petroleum Corporation Limited dealers have switched over to RTGS

mode. However 40% still remain to instruments and are yet to be transferred.


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Scope of the study.....MESSAGE FLOW STRUCTURES

An RTGS system, is a large value inter-bank funds transfer system, which in the evolution of

payment systems in different countries, has come about to replace the paper-based or

instrument-based (eg. inter-bank cheque clearing) settlement Electronic Banking and

Payment System to enable the settlement of inter-bank obligations. In its place, the transfer of

funds or settlement takes places based on the electronic instructions sent by paying members.

After the final transfer of funds takes place, the information or credit advice is sent to the

receiving bank or beneficiary bank, which can then utilize these funds for its own transactions

with certainty (in other words, without any risk). In the above context, there can be different

ways in which these payment messages can be transmitted (with varying time lags) between

and among the three entities namely, the paying bank, the beneficiary bank and the

settlement bank. RTGS systems are, therefore, said to have four different topologies based on

the different types of message flow structures.

V-SHAPED MESSAGE FLOW STRUCTUREUnder this message flow structure in an RTGS system, the full message with all the

information about the payment (including the details of the ultimate beneficiary, in case of a

customer-based funds transfer) is initially sent by the paying or sending bank to the

settlement bank i.e., the central bank. The settlement takes place at the central bank based on

the funds availability. Only then, the full payment message is sent to the receiving o

beneficiary bank.


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Y-SHAPED MESSAGE FLOW STRUCTUREUnder the Y-shaped topology for an RTGS system, the payment message is transmitted by the

sending bank to a central processor. This central processor takes a portion or relevant details

from the original payment message that is necessary for settlement and routes this core

information to the central bank for the purpose of settlement of funds (the original message is

kept in the central processor itself). Upon receipt of this core information (details pertaining

to the paying and receiving banks, amount etc), the central bank completes the funds transfer

depending upon the availability of funds in the account of the paying bank and informs the

status to Electronic Banking and Payment System the central processor. Thereafter, the full

message containing the confirmation of the settlement is rebuilt by the central processor and

sent to the receiving bank. The business information exchanged between the sending and

receiving bank (for example the details of the beneficiary, transaction details etc.) is not

known by the settlement bank.

L-SHAPED MESSAGE FLOW STRUCTUREIn this design of RTGS message flows, the payment message dispatched by the sending bank is

held at a system gateway attached to the sending banks internal processing system itself,

and only a subset of the information contained in the original message (a settlement request

is sent to the settlement / central bank to facilitate actual transfer of funds. Provided the

sending bank has sufficient funds in its account with the settlement bank, the transaction is

complete by the settlement bank which sends a confirmation to the sending banks gateway.

Upon receipt of this confirmation, the original payment message is released automatically

from the gateway of the sending bank and sent to the receiving / beneficiary bank.


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T-SHAPED MESSAGE FLOW STRUCTUREIn the three topologies explained above, the common feature is that the receiving bank will

receive full payment message only after the transaction has been settled by the central bank

The message flow structure itself, thus, ensures that the receiving bank will not act upon

unsettled payments, thereby minimizing risks for the system. Alternatively, RTGS systems

could apply a T-shaped structure, wherein the sending bank routes the payment message

directly to the receiving bank and simultaneously sending a copy of the payment message to

the settlement / central bank. This means that the receiving bank will first receive the full,

unsettled payment message immediately after the sending bank has dispatched it and will

subsequently also receive a confirmation message from the settlement bank after the

completion of the funds transfer. If the receiving bank is unable to or is lax in monitoring or

distinguishing between settled and unsettled payment messages, it may act upon such

unsettled messages and release funds to the beneficiary customer etc., thereby generating

credit and liquidity risks not just for itself but for the system as well. As such, the T-shaped

structure has been viewed as being incompatible with the basic principle of RTGS that a funds

transfer should be passed to the receiving bank if and only if it has been settled irrevocably

and unconditionally.


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KEY FACTORS OF RTGS.....

MESSAGE QUEUING ARRANGEMENTS

One of the areas of operational design of an RTGS system that can differ from one system to

another, is the approach of the system to processing of payments when the sending bank does

not have sufficient covering funds in its settlement account (mostly with the central bank).

One possible way is to reject the transfer order / request due to lack of funds. Such rejected

transactions or transfer orders will be returned to the sending bank to be submitted to the

system again at a later time when the sending bank has sufficient funds to ensure successful

completion of the transaction. Alternatively, the RTGS system may temporarily keep the

transfer orders in its central processor (called as system or centrally located queues) instead

of rejecting them. In this case, the pending transfer orders will be released for settlement

when sufficient funds become available in the account of the sending bank. Such release of

queued transfer orders will be on the basis of predefined rules agreed by the participants in

the system. It is also possible that when the transfer orders are rejected by the system and

returned to the sending bank, these messages will be put in an internal queue at the sending

banks system.


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QUEUE MANAGEMENTQueue Processing.....

Most centrally located queuing arrangements adopt a form of FIFO (First In First Out) rule for

queue processing. In such cases, funds transfer orders are held in the order in which they

were originally dispatched by the sending bank. When sufficient funds cover is available in the

account of the sending bank, the payment message at the top of the queue is released and

settled, and only then the payment message behind it in the queue is considered for

settlement. Some RTGS systems bypass this strict FIFO rule under which the system tries to

process the first transfer in the queue, but if that message cannot be executed owing to

insufficient funds in the account, then it tries to settle the next transfer instead. While FIFO

rule is known for its simplicity, non-FIFO rules, requiring some mathematical algorithms

might be more efficient in settling a greater number of transfers.

Prioritization of queued messagesSimilarly, efficiency in processing larger number of queued transactions is also possible with

facilities such as prioritization, reordering or optimization of the queued transactions. In such

cases, priority codes are attached to the funds transfer messages (the code will signify the

level of importance or urgency attached to the payment message), and where the transfer

orders cannot be settled immediately, they are placed in the queue on the basis of the

assigned priorities. When funds are available in the sending banks account, the queued

transfer orders are released on a FIFO basis within each priority level. This ensures that no

transfers of a particular priority will be settled until all those of a higher priority have been

settled. Priorities can be assigned to the payment messages either automatically by the system

depending upon the type of transaction or the priority can be explicitly assigned by the


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sending bank according to their assessment of the urgency of the transfer. Where the

priorities are assigned by the system automatically, generally a high priority is attached to

transfer orders relating to central bank operations or settlement obligations stemming from

other systems such as securities settlement systems (on Deliver versus Payment basis).

Reordering of queued transactionsWhere such a facility is provided, the individual banks or the system centre can reorder the

transfers in the queue by changing the original order of receipt or priorities with a view to

minimizing the number / value of queued transfers. Unlike prioritization, where the banks are

allowed to sequence their transfers before putting them in the system, reordering allows the

banks to manage their transactions after they have been put in the queue. In this way, any of

the transactions can be moved to the end of the queue (either by changing the priority code or

by cancelling and re-entering the payment transactions).

LIQUIDITY MANAGEMENTSince each transaction entering the RTGS system is to be settled individually (without being

set off against any incoming transaction with the same counterparty or otherwise), it

demands a lot of liquidity to be made available by the system participants. If the banks have to

optimize on the liquidity requirements, it calls for a very fine liquidity management on their

part to ensure that transactions or payment messages do not linger in the system for long

intervals of time thereby causing Gridlocks in the system. Since settlement in the RTGS system

takes place in the books of the central bank, it is thus essential for the banks to have sufficient

Balances in their central bank accounts throughout the processing day.


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Sources of LiquidityThe participants in an RTGS system have the following sources of liquidity to meet the

demands for settlement balances in the system:

Balances maintained in the account/s with the central bank

Incoming transfers from other banks

Liquidity support from the central bank

Borrowing from other banks in the money market

Balances maintained by the banks with the Central Bank may also be a part of reserve

requirements. Provided these balances can be used by the bank during the day, such reserve

requirements provide a useful source of funds for the banks participating in the RTGS system.

While incoming transfers certainly add to the liquidity pool of the banks, the dependability on

such receipts is determined by the patterns of receipts and their predictability. It also depends

on the availability of information in the system about such receipts. Banks may be able to fund

their positions by borrowing from other banks and institutions in the money market.

Utilisation of this source, however, depends upon the market timings and the liquidity

requirements along with its associated costs to the borrower. Another important source of

liquidity to the banks is the credit extension given by the central bank itself. Many central

banks provide intra-day credit to the RTGS participant banks, mostly free of interest, through

fully collateralized intraday overdrafts or intraday repos. Central banks may also set limits to

such credit extensions / liquidity support for different categories of members. A nominal fee

is also charged by many central banks for such accommodation. Some central banks also

extend overnight credit facility to the RTGS participants under certain conditions. Such

facilities would certainly be costlier for the banks. For the individual banks, optimal liquidity


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management is a challenge it has to finely balance the cost of delaying payment and the cost

of maintaining adequate liquidity (either its own resources or arranging through other

sources mentioned earlier). Besides the direct cost in terms of fees / charges etc., there is also

the opportunity cost of the using the assets to be given as collateral for obtaining such

liquidity (especially from the central bank).

Management of Intra-day LiquidityCentral banks are also concerned with the monitoring and managing liquidity in RTGS

systems so as to maintain a smooth flow of payments and to detect and prevent possible

gridlocks. To minimize the negative effects of a liquidity squeeze on the settlement process,

Rules governing some RTGS systems require members to send a certain proportion of their

daily payment messages by specified times. Such a rule would discourage members from

delaying their payments. An alternative method adopted by a few systems would be to apply a

transaction pricing policy that would encourage the early processing and settlement of

transfer orders. In such systems, the central bank or system operator would penalize the

banks sending late inputs while the receiving bank is subject to a flat pricing schedule.

Charging a penalty fee on the transfers that remain unsettled at the end of the day could be

used to complement such a transaction pricing policy.


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INTERFACE WITH OTHER SYSTEMS

Generally, RTGS systems also have a direct or indirect interface with other domestic or

international payment and settlement systems. Such interfaces may be built with major DNS

systems in the country so that the participants net settlement obligations in these systems get

settled in the RTGS system at one or more designated times. Such DNS systems could be both

large value and retail value systems. Similarly, RTGS systems could also have interface with

systems settling transactions emanating from the foreign exchange market and money

market. In fact, depending upon the level of development of financial markets in a country and

also the spread of financial intermediation, both large value as well as retail value

transactions can ultimately be settled through the RTGS system even if they are first cleared

and net obligations alone are routed to the RTGS for settlement.


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RTGS INDIAN SCENARIO

The RTGS system in India commenced operations from March 26, 2004 with the objective of

settling inter-bank transactions emanating from the Money market, Forex market and

Securities market. It also facilitates customer based inter-bank transactions in addition to

government and RBI transactions. The RTGS system is also being integrated, in phases, with

the accounting system of the RBI and other payment systems and services including clearing

obligations. RBI itself participates in the RTGS system as a Type A member (explained below),

and are also the operator and manager of the system besides providing the settlement bank

services for settlement of transactions put through in the RTGS system. Some of the salient

features of the RTGS system in India are explained below.

Membership criteria.....

Membership is open to all scheduled banks and to any other institution at the discretion of

RBI. The criteria for membership include: Member of INFINET

Member of Negotiated Dealing System

Maintain Current Account with DAD, Mumbai

Scheduled bank or Primary Dealer

Clearing house or clearing agency


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RTGS Transaction types

Inter-Institutional transactions these are the main or principal transactions of members

Customer transactions funds transfers of customers are also put through the RTGS system

where in the funds have to be credited to the beneficiary account within two hours of receipt

of credit

RBI transfers - Transactions initiated by RBI (g-sec, forex etc)

Own Account Transfer transactions - Transfers of funds between members own current

accounts with any DAD of the Bank

Multilateral Net Settlement Batch (MNSB) transactions - Batch transactions from clearing

entities such as clearing houses (cheque clearing), Clearing Corporation of India Ltd

(Government securities transactions, forex transactions and CBLO transactions) etc.

Membership category

Type A Membership includes RBI, all Scheduled banks including scheduled cooperative

banks. These members will be required to open a separate Settlement account in DAD,

Mumbai that will be distinct from their existing current account. These members will have a

Participant Interface, which will enable them to communicate with the RTGS system through

the IFTP. These members are eligible for availing the Intra-Day Liquidity facility extended by

RBI, and can have access to all kinds of RTGS transactions.

Type B membership is extended to Primary Dealers who will have similar features extended

to Type A members except putting through customer transactions.

Type C membership will be extended to Scheduled banks and PDs, participating in call money

operations, which will avail of RTGS services through either a Type A member of the Bank.

Hence these members will not require complete infrastructure facilities.


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Type D membership will be extended to clearing entities, which will submit clearing batches

for settlement to the RTGS system (through Clearing Interface / Net Settlement Interface). It

could include NCCs, Clearing Houses, CCIL and Stock Exchanges.

Type E membership will be extended to Non-scheduled banks and other financial institutions

if so decided by RBI in the future Settlement Account and Funding Account Settlement

account is a dedicated Account for RTGS transactions to be opened with RBI, DAD, Mumbai by

members. It will be an Intra Day Account, which will be funded (from the regular current

account of the member with DAD, Mumbai) at RTGS Start of Day, and the balance will be

flushed at RTGS End of Day. Accordingly, funding instructions (for transfer of funds from

current account to settlement account) have to be given by the members in the form of

Standing Instructions.

Liquidity in RTGS

RTGS systems entail active management of intra-day liquidity as adequate liquidity makes

possible a smooth flow of payments in RTGS helping to avoid delays to individual payments

and minimizing liquidity risks. Generally, sources and management of funds include:

Balances maintained in the account with the central bank / settlement bank

Incoming transfers from other banks including borrowing from money market

Credit extensions from the central bank

Separate RTGS settlement account

Own Account Transfers (from current accounts of members maintained with DAD Mumbai

as well as at other DADs)

Queuing facilities (holding payment instructions in a separate queue till such time sufficient

balance is available in the settlement account)


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Priority assignment by members along with re-prioritization facility Intra-Day Liquidity

facility

Gridlock Resolution Mechanism Mechanics of Intra Day Liquidity (IDL)

In our RTGS system, IDL is sought to be provided in the form of Intra Day Repos which will be

fully collateralized in the form of government securities. For this purpose, the RTGS system

will have an interface with the Securities Settlement System. In the SSS, members will have a

separate SGL account called as IDL SGL account into which members have to deposit

government securities from their SGL account which will be used as collateral (after applying

suitable margin / haircut) as and when IDL is to be used by a member. The underlying

principle in an intra-day credit facility is that participants must extinguish it by the close of

the day by fiat money to the central bank. Thus, the stock of reserve money which expands

during the course of the day returns to its initial level. The Reserve Bank would charge Rs.25

per transaction following the recommendations of the Working Group on Intra-day Credit

Facility (Chairman Shri A.B.Telang). In order to minimize credit risk IDL would be provided

against Central Government marketable securities (as explained above) with appropriate

haircut up

to a limit of three times of net owned funds (NOF) (Tier I Capital) as per the latest audited

balance sheet. The system will automatically attempt to reverse outstanding IDL at frequent

time intervals. At any cost, outstanding IDL has to be reversed by the member by end of the

RTGS day. Accordingly, if a participant is unable to extinguish its intra-day repo position

during the course of the day, the outstanding amount would attract a penal rate pegged at

twice the Bank Rate or twice the corresponding days maximum call money rate, whichever is

higher. If this breach (i.e., spill over to the overnight loan) occurs once, the participant would


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have to pay the penalty, besides being cautioned by the RBI. The account would also be placed

under surveillance. If it happens for a second time in a six-month period, the intra-day facility

would be suspended by the Bank and supervisory surveillance would be triggered. For

restoration of intra-day facility, reasonable evidence has to be provided to the RBI that

prudential treasury management is in place. If after restoration, it recurs for the third time

during the six month period, the intra-day facility will be withdrawn permanently.

Steps involved in RTGS processing of transactions

The following are the sequence of steps in a typical RTGS transactions, simplified

so as to enable a better understanding of the process flow of transactions:

1. RTGS being a Credit-push mechanism (where the payers account is first debited beforepassing on credit to other members in the system), the paying bank / member will send the

payment instruction to the IFTP (Inter-bank Funds Transfer Processor). This payment

instruction could be on its own account or on account of customer requests.

2. The IFTP receives the messages, validates them for security and authentication considerationsat the outset and if the message passes such validations send an acknowledgement to the

sender. In case of any problem, an error message is sent and in case of any security breach, the

logical connectivity with the sender is severed immediately. Thereafter, the content of the

message is verified and taken up for further processing. Only that information which is

relevant for settlement at RTGS will be stripped from the payment instruction and forwarded

to RTGS and the rest of the information (such as transaction details, customer information

etc.) is stored at the IFTP itself.

3. The instruction sent by IFTP is received by the RTGS which maintains the settlement base /accounts where the funds transfer actually takes place. The availability of necessary balance


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in the paying members account is checked.If sufficient balance is available, the paying banks

settlement account (distinct from and funded from the current account at Mumbai DAD) is

debited and the amount credited to the receiving banks settlement account. The message is

returned to the IFTP from where an acknowledgement is sent to the sending bank / member

and a credit advice is sent to the receiving bank / member. The relevant details (transaction

details, customer information etc.) that were stripped earlier from the payment instruction,

are added to the message by the IFTP and the forwarded to the receiving bank. In case the

transaction relates to customer funds transfer, then the credit has to be passed on to the

ultimate beneficiary / customer within the stipulated time.

4. In case sufficient funds are not available in the paying members settlement account, thepayment instruction is put in a logical queue. The pending payments in the queue are

monitored at scheduled intervals and will be processed on FIFO basis (within the priority

allotted to each payment). At the end of the day, any unprocessed message will be returned to

the sender.

5. Where the transaction is eligible for availing Intra-Day Liquidity (IDL) facility then the systemwill start the process for obtaining IDL so that necessary funds can be obtained and the

payment instruction can be processed successfully. Accordingly, a message will be sent to the

Securities Settlement System which is a component of the PDO-NDS / SSS application (having

an interface with the RTGS system).

6. When the SSS receives the message from RTGS for IDL requirement, the first step will be toauthenticate the message from security aspects. SSS is a component where all the investment

details of members are available not only to RBI but also to the members themselves.

7. As stated earlier, for the purpose of obtaining IDL, members have to open a separate SGLaccount with PDO Mumbai. Into this account, members have to deposit sufficient amount of


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eligible securities from their own SGL account so that as and when IDL is required by the

member, the securities lodged in the IDL SGL account will be used as collateral. Hence, when

the IDL request is received by SSS, the availability of securities balance in the IDL SGL account

is first verified (after applying the stipulated margins / hair-cut).

8. The unencumbered balance of securities in the IDL SGL account of the member will bereckoned for SLR calculation. If securities are available to cover the required amount of

funding, then the securities are debited from the members IDL SGL account and a success

message is sent from the SSS to RTGS.

9. If sufficient securities balance is not available, then a failure message will be sent to RTGSsystem. In case no IDL can be given, the payment instruction will be put back into the queue.

10.If a successful message is received from SSS, then IDL as required (within the stipulated limit)will be made available to the member so that the transaction in the payment queue can be

processed.

11. Whenever IDL is used by a member, the members settlement account will be monitored /checked at stipulated time intervals by the IDL Reversal process wherein, any fresh liquidity

coming into the account (from other sources) would be used to first reverse the IDL availed by

the member. In such a case, a message will be sent to SSS to release the securities back into

the members IDL SGL account so that the same will be available for further utilization of IDL

by the member.

12. Based on availability of this liquidity, the paying members settlement account is debited andthe receiving members account is credited. Message to the paying member and credit advice

to receiving member is sent as explained in step 3 above.


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Case Study of Hindustan Petroleum Corporation Limited.....

In this assignment a Public Sector Undertaking (PSU) belonging to the petrochemical industry has

been taken up. The name of the company is Hindustan Petroleum Corporation Limited. The

working of the company can be summarised as follows:

HPCL, a fortune 500 company, is one of the major integrated oil refining and marketing

companies in India. It is a Mega Public Sector Undertaking (PSU) with Navaratna status.

HPCL accounts for about 20% of the market share and about 10% of the nation's refining

capacity with two coastal refineries, one at Mumbai (West Coast) having a capacity of 6.5

Million Metric Tonnes Per Annum (MMTPA) and the other in Vishakhapatnam (East Coast)

with a capacity of 8.3 MMTPA. HPCL also holds an equity stake of 16.95% in Mangalore

Refinery & Petrochemicals Limited (MRPL), a state-of-the-art refinery at Mangalore with a

capacity of 9 MMTPA.

HPCL owns the country's largest Lube Refinery with a capacity of 335,000 Metric Tonnes

which amounts to 40% of the national capacity of Lube Oil production. HPCL has given India a

firm ground in this sector with its world class standard of Lube Base Oils. Presently HPCL

produces over 300+ grades of Lubes, Specialities and Greases.


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HPCL's infrastructure is at par with that of the best global corporations in the hydrocarbons

sector. For over a quarter century now, HPCL has been consistently breaking new grounds in

production and marketing. A glimpse of the vast marketing network already developed is

given below in a table:

08-09 07-08 06-07 05-06 04-05

Regional Offices 90 91 86 85 85

Terminals/Installations/TOPs 42 42 37 36 36

Depots 100 93 93 92 100

LPG Bottling Plants 43 43 42 41 40

ASFs 21 16 13 13 10

Retail Outlets 8539 8329 7909 7313 6667

SKO/LDO Dealers 1638 1648 1648 1648 1648

LPG Distributors 2250 2232 2238 2202 2153

LPG Customers (in crores) 2.698 2.52 2.39 2.28 2.17


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MAJOR PAYMENTS MADE AT HPCL:

CRUDE PAYMENT MADE BT THE HEADQUARTERS FINANCING OF MAJOR PROJECTS LIKE UPGRADATION OF REFINERIES OR TERMINALS, ETC.

MADE BY THE RESPECTIVE ZONAL OFFICE OR REGIONAL OFFICE

PAYMENT OF EXCISE DUTY MADE AT THE REFINERY PAYMENT OF SALES TAX MADE BY THE ZONAL OFFICE BY WAY OF CHEQUS OR ONLINE

MODE

PAYMENTS FOR PURCHASE OF PRODUCT FROM OTHER COMPANIES MADE BYHEADQUARTERS

SALARY TO THE MANAGEMENT LEVEL PAID BY HEADQUARTERS SALARY TO THE NON-MANAGEMENT LEVEL PAID BY THE ZONAL LEVEL PAYMENTS FORPURCHASE MADE AT LOCAL OPERATIVE LOCATIONS IS MADE BY THEIR

RESPECTIVE REGIONAL OFFICES.

THERE ARE TWO TYPES OF BANK ACCOUNTS MAINTAINED BY HINDUSTAN PETROLEUM

CORPORATION LIMITED FOR ITS FINANCIAL OPERATIONS. THEY ARE:

OPERATIVE ACCOUNTS NON-OPERATIVE COLLECTION ACCOUNTS


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OPERATIVE ACCOUNT

There are various modes in which the operative account of Hindustan Petroleum Corporation

Limited functions.

CHEQUES - Hindustan Petroleum Corporation Limited makes certain payments by way ofcheques. For example the payment made for leasehold premises is made by way of cheques.

ONLINE PAYMENTS - this is a process whereby Hindustan Petroleum Corporation Limited,like any other corporate organization, makes its payments through any bank, keeping a record

of the transactions. Later the vouchers are prepared in the system by the accountants for

book-keeping purposes.

E-PAYMENTS under this system the accountants of Hindustan Petroleum CorporationLimited upload all the payment vouchers in batches from the companys server to the

STANDARD CHARTERED BANK server through BATCH PROCESSING ROUTE instructing the

bank to make the mentioned payments. Thus the instructions get processed and payments are

made.

LETTER OF AUTHORITY (L.A.) it is a system where the specified authorized signatories ofHindustan Petroleum Corporation Limited can issue a LETTER OF AUTHORITY instructing the

bank to make payments on its behalf. It is to be noted that only the authorized personal can

issue such letters.

ELECTRONIC DATA INTERCHANGE (EDI) - Hindustan Petroleum Corporation Limited holdsa special account in the State Bank of India for the payment of freight charges to the railway

authorities. This account is linked to the CAG Branch, Mumbai and collects payments from it.

The railways directly debit this account for the amount due through a system called

ELECTRONIC DATA INTERCHANGE (EDI).


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The Regional Offices has an operative account through which they meet the expenses of the

various operating locations under them. The limit of money held in the Operative Account is

determined and approved by the Treasury at CAG Branch, Mumbai, depending upon the needs

and requirements of the Operating Locations under the Regional Offices. The Operating

Locations only have Petty Cash Deposits (PCD) with them to meet petty expenses like

maintenance cost or cleaning charges, etc.

However the limit defined for the Operating Locations does not include the Sales Tax to be

paid by the Regional Offices. The Sales Tax payments are directly made by the Zonal Office

through cheques or letter of authority from the treasury via the CAG Branch, Mumbai. The

Sales Tax are not be paid by the Operative account of the Regional Offices.

Besides the Operating account the Regional Offices have certain pre-funding accounts for

meeting expenses like

- salary payment of the non-management level staff;- pension payments;- Medical expenditures; etc.

The Regional Offices can open up new accounts requesting the Treasury at CAG Branch,

Mumbai. The Treasury approves the request and thus the required formalities are carried out

to open up the account.


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The Regional Offices can change the limitations or authorized signatories by making a request

to Treasury at CAG Branch, Mumbai. The Treasury approves the request and thus the required

formalities are carried out to make the required changes.

=======================================================================

NON-OPERATIVE COLLECTION ACCOUNT

The Non-Operative Collection Accounts are maintained by Hindustan Petroleum Corporation

Limited to receive payments from parties and other segments.

The various modes in which the Non-Operative Collection Accounts receives payments are:-

CHEQUES - Non-Operative Collection Accounts can receive payments in the form of chequesfrom its parties and then the amount gets credited into the bank account when presented.

DEMAND DRAFTS - Non-Operative Collection Accounts can receive payments in the form of

Demand Drafts. The money gets credited into the bank account of Hindustan Petroleum

Corporation Limited when presented in the bank.

PAY-ORDERS - Non-Operative Collection Accounts receive payments from parties in Pay-Orders. The payer instructs his/her banker to make payments into the account of Hindustan

Petroleum Corporation Limited.

E-RECIEPT - under this mode of receipt the payment is received by the banker of HindustanPetroleum Corporation Limited. The bank uploads the vouchers on to the server of Hindustan

Petroleum Corporation Limited via its server using the BATCH PROCESSING ROUTE. The

account of the company is credited as well. Thus the cash-receipt is prepared by the

accountants for book-keeping purposes.


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ONLINE PAYMENTS the payment is received in the company account through E-mode andcash receipt is prepared for book-keeping purposes.

DISCOUNTING LIMITS the company receives negotiable instruments from distinct dealers

in respect of product supplied to them. In general the banker of Hindustan Petroleum

Corporation Limited gets the instrument cleared by depositing it in the local clearing house.

Then the instrument goes to the clearing house of the payer to get cleared. This usually takes a

longer time which as a result blocks funds of the company. To solve this problem Hindustan

Petroleum Corporation Limited has made discounting arrangements with its banker. The

company has stated an estimated amount of outstation instruments it is to receive in a

stipulated period of time. The company pays a fixed rate of discounting charges on the

estimated amount irrespective of the fact whether the company receives any such

instruments. The benefit of this system is that as soon as the instrument is presented to the

banker the account of the company is created with such amount debiting the CAG Branch,

Mumbai for discounting charges. Thus the funds of the company remains mobilized.


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Research Methodology.....In order to study the effect of Real Time Gross Settlement (RTGS)

In the company I was continuously monitoring the working of the system in respect of receiving

and making payments for a period of 15 days.

I also visited the Kolkata Retail Outlet situated at Camac Street, Kolkata to study the

system of sales made by the company through its outlet.

When sales are made a challan is issued against it. Various instruments of payments are received

against sales. An Electronic-Cash Receipt (e-cash receipt) is generated in respect of the instrument

received. At the end of the day Bank Deposit Slip (BDS) is prepared. Each BDS contains details of

10 instruments received which include the document number, the name of the bank branch on

which the instrument is drawn, the instrument number and the amount to be credited. The

respective instruments are attached with their BDS and sent to the bank for crediting.

A Bank Reconciliation Statement is prepared at definite intervals to find out the number of

instruments not yet debited or credited into the account of the company and finally sorting them

out.


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SUMMARY OF FINDINGS.....After a brief analysis of RTGS and making comparisons with other payment settlement

systems the following points of benefit can be traced as follows:

RTGS is one of the most efficient and effective inter-bank payment settlement systems ofall

RTGS is very much time saving as the entire processing of the transaction is done inelectronic mode

RTGS is very much cost effective as electronic processing of transactions involves a lesseramount of cost

RTGS has a high level of accuracy as all transactions are efficiently completed. In case atransaction is incomplete it can be easily traced and rectified

RTGS ensures a high level of transparency as the bankers of the payer and the payeereceive prior information as per the debiting and crediting of their bank accounts

RTGS also ensures adequate amount of payment security as the payers account isdebited before the crediting of the receivers account

RTGS systems entail active management of intra-day liquidity as adequate liquidity makespossible a smooth flow of payments in RTGS helping to avoid delays to individual

payments and minimizing liquidity risks

Transactions are processed in FIFO (first in first out) basis. Thus there is no back loggingof pending transactions

Under RTGS system priority codes are attached to the messages depicting their urgencyand thus they can be processed in accordance of their urgency.


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ADOPTION OF RTGS

YEARR.T.G.S. TRANSACTIONS

(USD Million)

INSTRUMENT TRANSACTIONS

(USD MILLION)

1996-97 14.70 400.10

1997-98 15.00 288.10

1998-99 16.10 268.91

1999-00 29.10 241.43

2000-01 39.70 225.96

2001-02 111.60 189.00

2002-03 142.80 156.65

2003-04 190.20 128.652004-05 167.70 100.99

2005-06 212.90 87.32

2006-07 223.67 57.87

2007-08 245.40 40.23

2008-09 267.90 38.45

2009-10 291.43 39.63

2010-11 301.91 38.21

R.T.G.S. vs. INSTRUMENT TRANSACTIONS

0.00

50.00

100.00

150.00

200.00

250.00

300.00

350.00

400.00

450.00

1996-97

1997-98

1998-99

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

INSTRUMENT TRANSACTIONS

(USD MILLION)

R.T.G.S. TRANSACTIONS (USD

Million)


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From the above table and bar-graph plotted above we can clearly ascertain that in the due

course of time all undertakings are switching over to RTGS from the traditional methods of

settlement of payments. The Table on the last page clearly indicates the increment of RTGS

transactions over the years and decrement of Instrument Transactions, which is taken as an

example in explaining the circumstance.

However 40% of transactions still rely on instruments and are yet to be switched to electronic

mode


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Conclusion.....Finally I conclude hoping that my research and analysis was an informative one and

provides adequate information and knowledge about the topic.

After analyzing the various data and through the examination of the traditional

payment settlement system and the new and modernised electronic payment settlement

system I have observed that although HPCL is operating in both electronic an instruments

it needs to completely switch over to the electronic mode to ensure mobility of funds and

faster processing of transactions, thereby satisfying customers to the maximum.

HPCL aims to be the leading company in the petrochemical industry and holds the

potential to do so in its near future.

ALL THE BEST TO HPCL FOR ITS FUTURE.


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Bibliography..... DATA PROVIDED BY THE COMPANY AND OBSERVATIONS MADE

WHILE ANALYSING THE WORKING OF REAL TIME GROSS

SETTLEMENT IN HINDUSTAN PETROLEUM CORPORATION LIMITED

WEBSITES: WWW.GOOGLE.COM WWW.HPCL.GOV.IN A REPORT BY THE BANK OF INTERNATIONAL SETTLEMENTS
http://www.hpcl.gov.in/http://www.hpcl.gov.in/http://www.hpcl.gov.in/

Assignment on r.t.g.s. by Roni Rundlett

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