The Reserve Bank of India (RBI) released the report titled ‘Benchmarking India’s Payment Systems – Follow-on exercise’ in which India has shown a significant progress, and emerged as leader in large-value digital payment systems i.e. RTGS (Real Time Gross Settlement).
- India’s Payment Systems performance is based upon 40 indicators in which it was categorized as ‘leader’ in 16 indicators, ‘strong’ in 9 indicators, ‘ moderate’ in 7 indicators, and ‘weak’ in 8 indicators.
- In other words, India was categorized as a ‘leader’ or ‘strong’ in respect of 25 (21 in the previous exercise) out of 40 indicators and categorized as ‘weak’ in respect of 8 (12 in the previous exercise) indicators.
- Leader indicates 1st or 2nd or 3rd rank; Strong means in the top half of the countries other than the leaders; Moderate means in the bottom half of countries other than the bottom 5; and Weak is in the bottom 5.
Aim Behind Report:
i.To provide a comparative position, and to assess the progress of India’s payments ecosystem against other major countries
ii.To ascertain the strengths and shortcomings of the Indian payments ecosystem
iii.To examine the user preferences for payment systems and instruments
Assessment:
The data used for the exercise is for the year 2020 with CAGR (Compound Annual Growth Rate) for relevant indicators considered over the three-year period since the last benchmarking exercise, viz. from 2017 to 2020.
- It should be noted that the pilot exercise was undertaken in 2019 for 21 countries (including advanced economy countries, Asian economies and BRICS (Brazil, Russia, India, China and South Africa) nations), where payment systems are considered robust, diverse and efficient. This present exercise is a follow-on benchmarking exercise to examine India’s present relative position as compared to the last report.
Key Highlights:
i.India’s leadership position in large value payment systems and fast payment systems contributed to rapid growth in digital payments.
- India is one of the few countries where the large value RTGS system is available round the clock.
ii.There is scope for improvement in acceptance infrastructure i.e. ATMs (Automated teller machines) and PoS (Point of Sales) terminals. The Payments Infrastructure Development Fund (PIDF) scheme was operationalised in 2021 to enhance the acceptance infrastructure and bridge the gap.
iii.The reason behind the decline in India’s rating in some parameters was due to the increased demand for cash as a store of value during the Covid-19 pandemic related lockdown and the slowdown in economic growth during 2020.
iv.India has two fast payment systems, viz. Immediate Payment Service (IMPS) and Unified Payments Interface (UPI).
- The National Electronic Funds Transfer (NEFT) system operated by RBI is available 24×7 and ensures settlement in half hourly batches.
v.India’s domestic card network, RuPay, dominates the debit card segment with respect to card issuance.
- However, RuPay is lagging in the credit card segment with below 3% share of total cards issued.
vi.India has the third largest number of ATMs deployed, but remains weak with regard to people served per ATM due to its sizeable population.
vii.In 2020, the share of card payments in total payment systems transactions was the second lowest in India (14.7%), with only Indonesia witnessing a lower share (7.2%).
viii.The report has recommended India to explore further actions on enhancing cross-border payment arrangements including internationalization of Indian rupee which will facilitate greater integration with the rest of the world, in terms of foreign trade and international capital flows.
ix.According to the report, India reported the second-highest compounded annual growth rate (CAGR) of 21 percent (2017-2020), behind only Saudi Arabia, which registered an annualized growth of 26 percent.
Click Here for Official Report
RBI’s New Guidelines for Non-Bank PSOs
RBI in exercise of its powers conferred under Section 10 (2) read with Section 18 of Payment and Settlement Systems Act, 2007 issues new guidelines for non-bank payment system operators (PSOs).
- PSOs are institutions, which have been authorized to operate payment systems.
Key Mandates:
i.Non-bank PSOs mandated to require prior approval of RBI in the following cases –
- Takeover / Acquisition of control, which may / may not result in change of management
- Sale / Transfer of payment activity to an entity not authorised for undertaking similar activity
ii.Non-bank PSOs mandates to inform RBI within 15 calendar days in the following cases –
- Change in management / directors: In case of acquisition or takeover, non-bank or transfer PSO are mandated to submit an application to RBI with information about the proposed directors and complete details about the new shareholders.
- Sale / Transfer of payment activity to an entity authorized for undertaking similar activity: Seller or transferor non-bank PSO will apply to the RBI to obtain prior approval and minimum appropriate details.
RBI will respond to applications within 45 days after receiving complete details from both the entities. This timeline is not applicable to overseas principals under the Money Transfer Service Scheme.
Recent Related News:
i.The RBI has introduced a standing deposit facility (SDF) as an additional tool for absorbing liquidity without any collateral, at an interest rate of 3.75%. The main purpose of SDF is to reduce the excess liquidity of Rs 8.5 lakh crore in the system, and control inflation.
ii.In accordance with the RBI data, a total of 27 Scheduled Commercial Banks (SCBs) and Financial Institutions (FIs) have reported 96 cases of fraud, worth Rs 34,097 crore in the first nine months of FY22 (April-December 2021).
About Reserve Bank of India (RBI):
i.The Reserve Bank of India was established on April 1, 1935, in accordance with the provisions of the Reserve Bank of India Act, 1934.
ii.The Central Office of the Reserve Bank was initially established in Calcutta but was permanently moved to Mumbai in 1937.
iii.Though originally privately owned, since nationalization in 1949, the Reserve Bank is fully owned by the Government of India.
