On 6 February 2020, the Reserve Bank of India (RBI) made significant announcements pertaining to the fintech sector. These include creation of a Digital Payments Index to capture the extent of digitisation and establishment of Self-Regulatory Organization for digital payments system.
This is a part of various developmental and regulatory policy measures for improving credit flows to certain sectors; reinforcing monetary transmission; strengthening regulation and supervision; broadening and deepening financial markets; and improving payment and settlement systems, which the Central Bank announced in its Statement on Developmental and Regulatory Policies.
Key highlights of RBI’s statement pertaining to the fintech sector:
- Digital Payments Index
The Reserve Bank shall construct and periodically publish a composite Digital Payments Index (DPI) to capture the extent of digitisation of payments effectively. “The DPI would be based on multiple parameters and shall reflect accurately the penetration and deepening of various digital payment modes. The DPI will be made available from July 2020 onwards,” said RBI in a statement.
The introduction of such an index is a welcome step, as it will lead to better monitoring of cashless payments in the country. Until now, RBI had been releasing month-wise data of the volume and value of transactions carried out through different digital modes. This, however, did not contain granular details and nor did it capture data for some transaction segments. This move by RBI is likely going to ease the data accessibility issue pertaining to digital payments. However, detailed specifications of this index is awaited.
- Framework to Establish Self-Regulatory Organisation (SRO) for Digital Payment System
According to the Central Bank, with substantial growth in digital payments and maturity gained by entities in the payment ecosystem, it is desirable to have a Self-Regulatory Organisation (SRO) for orderly operations of the entities in the payment system.
The Reserve Bank will put in place a framework for establishing a SRO for the digital payment system by April 2020 with a view to fostering best practices on security, customer protection and pricing, among others. “The SRO will serve as a two-way communication channel between the players and the regulator/supervisor,” the RBI said.
While a SRO exercises some degree of regulatory authority over an industry or profession, it could exist in place of government regulation, or applied in addition to government regulation. We will be able to comment on this once the Central Bank puts the draft framework in public domain for consultation. We will be engaging with the industry on this matter.
- Pan India Cheque Truncation System
The Cheque Truncation System (CTS), which is currently operational at the major clearing houses of the country, has stabilised well and made large efficiency gains. In view of this, a pan India CTS will be made operational by September 2020, said RBI.
Truncation is the process of stopping the flow of the physical cheque issued by a drawer at some point by the presenting bank en route to the paying bank branch. In its place, an electronic image of the cheque is transmitted to the paying branch through the clearing house, along with relevant information like data on the MICR band, date of presentation, presenting bank, etc. Cheque truncation thus obviates the need to move the physical instruments across bank branches, other than in exceptional circumstances for clearing purposes. This effectively eliminates the associated cost of movement of the physical cheques, reduces the time required for their collection and brings elegance to the entire activity of cheque processing.
The benefits from CTS could be summarized as follows –
- Shorter clearing cycle
- Superior verification and reconciliation process
- No geographical restrictions as to jurisdiction
- Operational efficiency for banks and customers alike
- Reduction in operational risk and risks associated with paper clearing
- No collection charges for collection of cheque drawn on a bank located within the grid.
CTS has been implemented in New Delhi, Chennai and Mumbai with effect from February 1, 2008, September 24, 2011 and April 27, 2013 respectively.
Pan India implementation of CTS is definitely a welcome initiative by RBI. NASSCOM is watching this development closely and for any further information, write to firstname.lastname@example.org.