What is Payment and Settlement System?

The payment and settlement system in India is governed by the Payment and Settlement Systems (PSS) Act, 2007. According to definition of PSS Act 2007, Payment System means a system that enables payment to be effected between a payer and a beneficiary, involving clearing, payment or settlement service or all of them. This includes the systems enabling credit card operations, debit card operations, smart card operations, money transfer operations or similar operations. However, as per Section 34 of the PSS act, the above definition of payment system is not applicable to stock exchanges or clearing corporations set up under stock exchange. The “Settlement” means according to the above acts ‘the settlement of payment instructions received and these include settlement of securities, foreign exchange or derivatives or other transactions’. Settlement can take place either on a net basis or on a gross basis. Both netting and gross settlement system is defined under PSS Act.

The Reserve Bank of India (Reserve Bank) is the designated authority for regulation and supervision of payment system and all related matters under PSS Act 2007.As a regulator, Reserve Bank of India , made two regulations, namely, the Board for Regulation and Supervision of Payment and Settlement Systems (BPSS) Regulations, 2008 and the Payment and Settlement Systems (PSS) Regulations, 2008. Both these system regulations came into force along with the PSS Act, 2007 on 12th August 2008. BPSS is empowered for authorising, prescribing policies and setting standards for regulating and supervising all the payment and settlement systems in the country. Any person/entity wanted to start payment system in India shall take prior approval of RBI before commencement of the business. The payment systems like  pre-paid payment instruments, card schemes, cross-border in-bound money transfers, Automated Teller Machine (ATM) networks and centralised clearing arrangements were  all started operating  in India after obtaining authorization from RBI.

The following are the other Payment systems handled by RBI;

ECS (Credit) scheme was introduced by RBI during the 1990s to handle bulk and repetitive payment requirements (like salary, interest, dividend payments) of corporates and other institutions.    ECS (Debit) Scheme was introduced subsequent to it where it facilitates consumers / subscribers of utility companies to make routine and repetitive payments by ‘mandating’ bank branches to debit their accounts and pass on the money to the companies. Clearing Corporation of India Limited (CCIL) was set up in April 2001 by banks, financial institutions and primary dealers, to function as an industry service organisation for clearing and settlement of trades in money market, government securities and foreign exchange markets. In November 2005, a more secure system like NEFT and RTGS were introduced for facilitating one-to-one funds transfer requirements of individuals / Corporates. The mobile banking for banks was introduced in October 2008.

 NECS, RECS has been launched by RBI during the year 2009. Under this system, the sponsor bank uploads the validated data through the Secured Web Server of RBI containing credit/debit instructions to the customers of CBS enabled bank branches spread across the Jurisdiction of the Regional office of RBI.

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