Latest Rbi Guidelines for Banking Instruments With Criticism to the Last One

7/31/2019 Latest Rbi Guidelines for Banking Instruments With Criticism to the Last One

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INDIAN INSTITUTE OF PLANNING AND MANAGEMENT

16, Ashok Marg, Hazaratganj, LUCKNOW

INSURANCE AND BANKING

TOPIC:

LATEST RBI GUIDELINES FOR BANKING

INSTRUMENTS WITH CRITICISM TO THE LAST ONE

SUBMITTED TO:

Prof.Atul Vyas

SUBMITTED BY:NAMRATA SHANKAR

PGP/FW/10-12/SEC-A


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LATEST RBI GUIDELINES FOR BANKING

INSTRUMENTS WITH CRITICISM TO THE LAST ONE

INTRODUCTION

With the onslaught of the global financial crisis, banking sector policy across the

world has received a newer meaning and relevance. There is a growing realization

that regulatory and supervisory policy needs to be strengthened to adopt a system-

wide approach to counteract pro-cyclical movements in the banking sector. The

perimeter of regulation also needs to be expanded to cover the unregulated segments

in order to minimize regulatory arbitrage. India has been lauded as one of the few

countries that have followed a vigilant and counter-cyclical policy approach tobanking sector developments.

Payment and Settlement System

The Reserve Bank has set up a robust technology-based payment and settlement

systems infrastructure with enhanced assurance of uninterrupted and efficient

provision of services. Major policy initiatives taken during the year to further

strengthen the payment and settlement system were as follows:

1. Paper Clearing: Express Cheque Clearing System

To impart more efficiency to clearing process in non-MICR clearing houses, an

advanced clearing house automation package Express Cheque Clearing System

(ECCS) has been introduced. The ECCS would accept multiuser inputs in a

networked environment, core banking integration and graphic interface

compatibility. The National Payments Corporation of India (NPCI) has been

entrusted with the task of operationalizing this package. As in the guidelines for the

year 2010-11 RBI introduced ECCS there only in the guidelines for year 2009-10

RBI focused on enhancing the safety, security and efficiency of paper based system,

the Reserve Bank took steps like (i) discontinued high value clearing in a non-

disruptive manner over a period of one year; (ii) extended speed clearing which

facilitates local clearing of outstation cheques, to 66 MICR centers; (iii) Initiated


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steps to roll out Cheque Truncation System (CTS) in Chennai covering all the

southern centers after successfully implementing the same in the National Capital

Region; (iv) issued a new cheque standard styled CTS -2010 to enhance the integrity

of images procured under CTS by mandating minimum security features covering

quality of paper, watermark, banks logo in invisible ink, and void pantograph oncheque forms.

2. Electronic Payment Systems

To provide near-to-real-time funds transfer facility to retail customers, as also to

cater to the stock market timings, 11-hourly settlements on week days and five-

hourly settlements on Saturdays in National Electronic Fund Transfer (NEFT) was

introduced in March 2010, which has now been extended to over 79,000 branches.

This is expected to enhance customers preference for electronic modes of payment.

Where in the year 2010-11 RBI just mentioned the number of branches in which

NEFT service was extended, in the year 2009-10 RBI gave a detailed overview on

the regulations of payment systems. Towards RTGS, following initiatives were

taken:

extended customer and Inter bank transactions timings for processing RTGS

transactions on Saturdays by 30 minutes and is now available from 9.00 hours to13.30 hours for customer transactions and from 9.00 hours to 15.00 hours for

Interbank transactions.

permitted SEBI regulated clearing entities viz. Indian Clearing Corporation Limited

(ICCL) and National Securities Clearing Corporation Limited (NSCCL) to settle

funds legs of OTC trades of the corporate bond transactions in RTGS from

December 2009.

Steps initiated for ushering in Next- Gen RTGS keeping in view the increase in thecoverage, usage and change in the technology.

The following measures were initiated to strengthen the NEFT system: (i) mandated

creation of Customer Facilitation Centre (CFC) at the service centre of the NEFT

member bank for prompt resolution of customer complaints. A directory of the


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CFCs has been placed at the RBI website for the benefit of the public; (ii) return

discipline for NEFT transactions tightened by mandating the returns within two

hours of completion of a batch against the earlier T+1; (iii) increased the number of

settlements from six to eleven on week days and from three to five settlements on

Saturdays to achieve a near-real time settlement of transactions; (iv) introduced thesystem of providing Positive Confirmation to the remitters of funds through NEFT

for a successful credit to beneficiarys account which is a unique initiative.

3. Prepaid Payment Instruments

Keeping in view the increasing popularity of prepaid payment instruments, the

guidelines issued in April 2009 were revisited in November 2010 and the following

amendments inter alia were effected: (a) Extension of the use of semi closed prepaid

payment instruments used for payment of utility bills for the purchase of travel

tickets; (b) Permission to banks to issue semi closed prepaid payment instruments

through agents and BCs. Further, the maximum value of prepaid instruments that

can be used in the form of mobile-wallets (m-wallets) has been increased

from `5,000 to `50,000.

Whereas in the year 2009-10 detailed guidelines were issued in April 2009, on the

issue and accounting of pre-paid payment instruments. To widen the scope of these

guidelines, in August 2009, non-bank entities which were not permitted earlier werealso permitted to issue mobile based pre-paid payment instruments. The Reserve

Bank has accorded approval to 28 banks and authorization to 16 non-bank entities to

issue pre-paid instruments.

To safeguard interests of customers and to ensure that the payments made by them

using Electronic /Online Payment modes are duly accounted for by intermediaries

receiving such payments, directions were issued in November 2009. Directions

require that the funds received from customers for such transactions need to be

maintained in an internal account of a bank and the intermediary should not have

access to the same.

4. Card-based Transactions


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Given the increasing usage of cards (credit/debit/prepaid) issued by banks, there is a

definite need to make both Card Present (CP), where card is swiped at ATMs and

Points of Sale (PoS), and Card Not Present (CNP) transactions, safe and secure. An

important step taken by the Reserve Bank, which is unique globally, is the mandate

given to banks to provide additional authentication for all CNP transactions based oninformation not available on the card. The banks introduced additional

authentication for CNP transactions except the Interactive Voice Response (IVR)

transactions in April 2009, and extended the same to all IVR transactions in

February 2011. The mandate presently applies to all transactions using cards issued

in India for payments on merchant sites where no outflow of foreign exchange is

contemplated. This initiative has increased the confidence of customers in this

channel leading to a steep fall in the frauds in e-commerce transactions. The Reserve

Bank has recently constituted a Working Group to look into the issue of security ofall CP transactions.

Whereas in the year 2009-10 Reserve Bank mandated the following steps to enhance

the quality of customer service in banks and mitigate risks arising out of usage of

credit/debit cards over internet: (i) additional authentication on usage of credit

cards over internet, based on the information not available on the card; (ii) online

alert to be sent to the cardholder for card not present (CNP) transactions of value

for `5,000 and above; (iii) additional authentication and online alert to be

implemented for transactions carried out over telephone (IVRS) from January 2011.

5. Efficiency in the ATM Delivery Channel

To improve the operational efficiency of ATMs for customers, the Reserve Bank in

May 2011 has inter alia advised banks: (a) To reduce the time limit for resolution of

customer complaints from 12 working days to seven working days from the date of

receipt of the customer complaint; (b) The customer is entitled to receive

compensation for delay at the rate of `100 per day, provided the complaint is lodged

with the issuing bank within 30 days from the date of the transaction; (c) All

disputes regarding ATM-failed transactions should to be settled by the issuing bank

and acquiring bank only through the ATM system provider leaving no scope of

bilateral settlement arrangement outside the dispute resolution mechanism of the


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system provider. This measure would bring down the instances of disputes in

payment of compensation between the issuing and acquiring banks.

Whereas, in year 2009-10 RBI mandated following steps: (i) reimbursement to the

customers the amount wrongfully debited by banks on account of failed ATMtransactions within 12 days and automatically pay compensation of `100 per day for

delays in such disbursement to them; (ii) to place a standardized ATM complaint

template at all ATMs and banks websites; and (iii) permitted banks to allow their

customers cash withdrawal up to`1,000 per day using debit cards at POS terminals.

6. Oversight of Payment Systems

To ensure that the payment systems operate in a safe and efficient manner and in line

with extant policy prescriptions, the Reserve Bank has initiated a process ofassessment, comprising both off-site surveillance and on-site inspections

complimented by market intelligence. As part of the off-site surveillance, a database

on the various payment instruments, their volume and value has been created and

placed on the RBI website. An assessment template has been devised to aid

authorized entities to carry out a self-assessment of their operations, risk

management and business continuity arrangement.

Whereas, in the year 2009-10, the developments in the payment system werecontinued to be closely monitored to ensure that no person operated a payment

system without specific authorization from the Reserve Bank under the PSS Act,

2007. The Bank intervened in a few such cases and also issued show cause notices to

few banks for violation of the Reserve Bank directions on charges for collection of

outstation cheques.

Latest Rbi Guidelines for Banking Instruments With Criticism to the Last One

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