22. Reserve Bank of India-Shrikant

REAL TIME GROSS SETTLEMENT

(RTGS) PAYMENT SYSTEM

SIP project report submitted in partial fulfillment of

the requirements for the PGDM Program

By:

PUNEET KANDOI

Roll Number: 08FN072

Supervisors:

1. Shri Ashutosh Jaiswal (Manager – RTGS)

Deposit Accounts Department,

Reserve Bank of India, Mumbai

2. Prof. Harshavardhan Halve, IMT Nagpur

3. Prof. Anil Kumar, IMT Nagpur

Institute of Management Technology, Nagpur

2008 – 2010

SIP report on RTGS Payment System Page 2

ACKNOWLEDGEMENTS

I am sincerely grateful to Reserve Bank of India for providing me an opportunity to be a

part of its Summer Internship Scheme 2009. This Summer Internship is a necessary

component towards fulfillment of the requirements of the Post Graduate Diploma in

Management (PDGM) program that I am currently undergoing from Institute of

Management Technology, Nagpur. Having undergone the Summer Internship from one

of India’s most prestigious and respected institutions has indeed been a learning,

rewarding and pleasurable experience for me.

I also want to express my gratitude and sincere thanks to my project guide Sri Ashutosh

Jaiswal for constantly guiding and supervising my project. This project would not have

been possible without his support and motivation. The support from other RBI employees

in the Deposit Accounts Department is also praise-worthy. Last but not the least, I am

grateful to Prof. Harshavardhan Halve and Prof. Anil Kumar, the faculty guides for this

project for their guidance and support.

Puneet Kandoi

Summer Trainee

Reserve Bank of India


TABLE OF CONTENTS

S. No. Topic Page No.

1

2

3

4

5

6

7

8

9

10

11

12

13

14

Executive Summary

Introduction

Components of the Indian Payment System

Real Time Gross Settlement (RTGS) Payment System

Objectives of the Study

Brief about the organization where the study was carried out

Functional working of the Deposit Accounts Department

Methodology followed

Tabulation and Findings

I. Comparison of Indian RTGS system with other countries

II. Modus operandi of RTGS in various banks

III. Results from survey on Banks’ feedback on RTGS

Personal observations and Recommendations

Limitations of the study

Scope for improvements

Appendix – Questionnaire used for the survey

Bibliography

4

5

7

9

14

15

16

17

19

19

24

34

47

48

48

49

53


EXECUTIVE SUMMARY

Real Time Gross Settlement (RTGS) Payment System is the fastest and the most efficient

method of transferring funds through the banking channel. Countries around the globe

have been using this payment mechanism efficiently over the years. Started by the

Reserve Bank of India in October 2004, this product has seen tremendous growth in the

country over the years. The number of participating banks has increased substantially,

and so has the volume and value of transactions carried out through RTGS; and the

growth is expected to continue in the times to come.

This project aims to study different aspects of the RTGS system in India. There are three

main goals of this project: (1) To analyze the performance of the Indian RTGS system

with that of other major countries (primarily in terms of volume and value of RTGS

transactions carried out by different countries). (2) To understand the modus operandi of

RTGS’ usage in some banks which actively/extensively use RTGS system in their

operations, and (3) To get a feedback from the member banks on the performance of

RTGS payment system.

The countrywide comparison has been done for 75 countries and the performance of the

Indian RTGS system has been compared to them. To get a meaningful comparison, the

value of the RTGS transactions has been expressed as the number of times of the GDP of

the respective country. India’s performance vis-à-vis the other countries has been

highlighted. The modus operandi of RTGS in 4 banks has been studied in detail and

presented in this report. Apart from this, Feedback from 25 member banks has been taken

with the help of a questionnaire, and various results from the study conducted have been

presented in the form of graphs and personal observations. Finally, the project aims to

look at various issues/problems faced by the banks in the RTGS system and takes their

suggestions on how to improve it. The recommendations given towards the end of the

report are based on the observations during the survey and on the interaction with the

member banks.


INTRODUCTION

A Payment System is a system used to settle financial transactions in various markets

(viz. bond markets, currency markets, and futures, derivatives, or options markets) or to

transfer funds between financial institutions. In other words, a payment system is a

mechanism that facilitates transfer of value between a payer and a beneficiary by which

the payer discharges the payment obligations to the beneficiary.

The Core Principles for Systemically Important Payment Systems, outlined by the

Committee on Payment and Settlement Systems (CPSS) of the Bank for International

Settlements, Basle, define payment systems as “a set of instruments, procedures and

rules for the transfer of funds among system participants”. The most significant payment

systems are a major channel by which shocks can be transmitted across domestic and

international financial systems and markets.

The Payment System has importance for the functioning and integration of financial

markets. It influences the speed, financial risk, reliability and cost of domestic and

international transactions. As a consequence, it can, among others, act as a conduit

through which financial and non financial firms and other agents affect overall financial

system stability, with a potential for domestic and cross border spillover effects. The

payment system also affects the transmission process in monetary management, the pace

of financial deepening and the efficiency of financial intermediation.

In essence, the payment systems are required for the following purposes:

• For protecting key existing assets of the banking system.

• For strengthening the customer base.

• For reducing existing costs and generating new income.

• To reduce the various risks associated with the payment systems (Credit risk,

Liquidity risk, Operational risk, Legal risk and Systematic risk).


The payment system in India operates under the following pyramid:

The Reserve Bank of India acts as a regulator and supervisor of the payment and

settlement systems, and is the settlement bank. Its vision regarding the payment systems

has been:

• The establishment of safe, secure, sound and efficient payment and settlement

systems for the country.

• Anyone can make payments to whomsoever one likes, whenever one likes, in

whatever type of currency one likes, at the cost of a few cents per transaction.

• There are no settlement delays or mountains of paperwork and value is received

instantaneously.

• Privacy and security are guaranteed.

In consonance with this vision, the RBI has brought various types of payment systems

into use. Each of these payment systems serves a different purpose and has differentiating

characteristics. To get a fair understanding of these payment systems, we will take a brief

look at some of the Systemically Important Payment Systems (SIPS) operating in India

and their features.


COMPONENTS OF THE INDIAN PAYMENT SYSTEM

Components of the Indian payment system

Retail Systems Large Value Systems

Paper Based Electronic Paper Based Electronic

MICR ECS NEFT SEFT High Value Inter-bank

Clearing Clearing

PDO-NDS/SSS Forex Clearing RTGS

Now let us examine some of the important payment systems in brief:

• ECS (Credit) - Under ECS (Credit) one entity / company would make payments

from its bank account to a number of recipients by direct credit to their bank

accounts. For instance, companies make use of ECS (Credit) to make periodic

dividend / interest payments to their investors.

• ECS (Debit) - ECS (Debit) is mostly used by utility companies like telephone

companies, electricity companies etc. to receive the bill payments directly from

the bank account of their customers. Instead of making electricity bill payment

through cash or by means of cheque, a consumer (individuals as well as

companies) can opt to make bill payments directly into the account of the

electricity provider / company / board from his own bank account.


• National ECS (NECS) - Aims to centralize the ECS operation and bring in

uniformity and efficiency to the system. NECS (Credit) would facilitate multiple

credits to beneficiary accounts destination branch at participating center against a

single debit of the account of a user with the sponsor bank. NECS (Debit) would

facilitate multiple debits to destination account holders against single credit to

user account. The system has a pan-India characteristic leveraging on CBS of

member banks. The cycle time is T + 2.

• Centralized ECS (CENECS) – This service is available in 15 centers. Under

Centralized ECS, a user can submit ECS data at a single location for transfer

amongst beneficiaries located at any of the other centers forming part of the ECS

network. The scheme ensures quick, safe & efficient movement of funds for

repetitive small value transactions such as credit of interest arising from fixed

deposits, dividends, refund amounts & the like. It operates on T + 2 basis.

• National Electronic Funds Transfer (NEFT) – NEFT system is a nationwide funds

transfer system to facilitate transfer of funds from any bank branch to any other

bank branch without any delays or procedural hassles. The beneficiary gets the

credit on the same Day or the next Day depending on the time of settlement.

• High Value clearing: High value clearing is a value added service. In this clearing

select branches located in a central business/commercial area and in the vicinity

of the Clearing House/Service Branches of banks present instruments with a face

value of Rs.1 Lac and above (now increased to Rs. 5 Lacs and above) deposited

by their customers within a specified cut-off time, to the clearing house.

• Inter-bank Clearing: Inter-bank payments are usually settled among banks by

issuing cheques drawn on their accounts with Reserve Bank of India. In the Inter-

bank clearing banks no longer use the RBI cheques to settle their claims against

each other. Instead, they use their own Bankers Cheques.


REAL TIME GROSS SETTLEMENT (RTGS) PAYMENT SYSTEM

The RTGS payment system was started in October 2004, and is managed by the Deposit

Accounts Department of the RBI. It is classified as a “Large Value Payment System”, as

only transactions of a value of greater than Rupees One Lac can be processed through it.

Apart from the National Electronic Funds Transfer (NEFT), RTGS is the only other

payment system classified under “National Payment Systems” by the RBI.

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 distinction between the different types of payment systems is:

Payment System

Settlement Time

Mode of Transaction

Cost No. of Centers Awareness

MICR T + 2 Manual - 60 High

High Value Clearing T + 0 Manual - 18 Medium

ECS Single debit or credit

Electronic Decided by the user banks

30000+ branches

Low

NEFT T + 0 / T + 1

Electronic

Rupees 5/- for transactions less than Rs. 1Lac, 25/- for > 1Lacs

53000+ branches

Low

RTGS Instantly Electronic

Rupees 25/- for transactions up to 5 Lacs, 50/- for more than 5 Lacs

55000+ branches

Low


Some Salient features of the Indian RTGS system

• Participant Interface (PI) : Each participant has access to the RTGS system via a

Participant Interface (PI), which supports high-value payments and associated

non-value functions such as enquiries, queue management, reporting, security,

and resilience and recovery requirements.

• Y-Topology: The Indian RTGS system is based on the Y-Topology and an

Integrated Accounting System (IAS). Under the Y-shaped topology for an RTGS

system, the payment message is transmitted by the sending bank to a central

processor (IFTP). This central processor takes only the relevant details from the

original payment message 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). The central bank completes the

funds transfer, provided funds are available, and informs the status to 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.


• Queuing System: In order to optimize the efficiency of the system, the RTGS

system in India has incorporated a queuing mechanism. Payment messages that

cannot be processed in real time due to insufficient funds in the sending bank's

settlement account are placed in a Queue. There would be one logical payment

queue for each participant. Participants can view their "Outgoing" messages

queue, but not the “Incoming” messages. Queued transactions are processed in

FIFO - First In First Out – order. FIFO ordering of message processing (queued

transactions) can be altered by members by re-ordering / assignment of priorities

to transactions. Priorities can be set / changed by the sending participants. Default

priorities can be assigned by the system for each transaction type. Participants can

assign 0 - 99 levels of priority to their transactions. A range of priorities (0-10) are

reserved for RBI. Gridlock Resolution: If transactions remain in the queue for

long, it can lead to a situation of Gridlock. In order to enhance the performance

efficiency of the system, Gridlock resolution has been provided in the system by

way of netting (outgoing and incoming) messages of members.

• Intra-day Liquidity Provision : In case funds are not available in the settlement

account of the paying bank, intra-day liquidity (IDL) to the participants is

provided by RBI against 100% collateral. Only specific types of transactions are

eligible for such IDL support. Participants have to earmark the eligible securities

available as collateral for IDL purposes in the Securities Settlement System (SSS)

for this purpose so that the RTGS can communicate with the SSS for the

operation of IDL. The limit to IDL usage by any bank is kept at three times the

bank’s Net Owned Funds (NOF). Each instance of IDL usage by a bank attracts

nominal usage charges, irrespective of the amount of IDL taken.

• Interaction with Net Settlement Systems: Multilateral Net Settlement Batch

(MNSB) transactions, which allow multiple counter parties to the transaction and

are submitted by authorized clearing entities, are also allowed through the RTGS

platform and these have priority over other transactions held in the queue.


Indian RTGS – Process Flow

The process flow of a transaction in the RTGS system in India is described below:

• Paying Bank - The Paying bank sends the payment message through the

Participant Interface, giving details of beneficiary, transaction type, amount etc.

• IFTP - The IFTP receives the message and validates the digital signature, etc.

Thereafter, only the relevant portion of the message is sent to the RTGS system.

• RTGS settlement account - In the RTGS Settlement Account base, the settlement

accounts, funded according to the standing instructions given by the members, are

held. It is here that the final debits and credits into members’ accounts take place.

• Balance check - In the RTGS Settlement Account base, the settlement accounts,

funded according to the standing instructions given by the members, are held. It is

here that the final debits and credits into members’ accounts take place.

• Settlement entries - If sufficient funds are available for completing the payment

instruction, the paying bank's account is debited and the amount is credited to the

settlement account of the receiving / beneficiary bank.

• Receiving bank - The receiving bank will receive the credit advice from the IFTP

(along with necessary transaction details) once the amount has been credited to its

settlement account in the RTGS settlement account base.

• Queuing mechanism - In case sufficient funds are not available in the paying

bank's settlement account during balance check, the payment message is put in a

Queue. The pending messages in the queue will be processed in FIFO order

within the assigned priorities to messages.


• IDL eligibility - From the queued transactions, the transactions are checked to see

whether they belong to the type which is entitled to obtain Intra Day Liquidity

from RBI. This check happens at pre-designated time intervals.

• Message to SSS - Once it is ascertained that a queued transaction is eligible for

IDL from RBI, a message is sent to the Securities Settlement System (SSS) to

check the status of securities availability as collateral for IDL. SSS is part of the

PDO-NDS application.

• IDL-SGL balance check - When the IDL related message is received at the SSS,

a check is done on the IDL-SGL Account for availability of sufficient stock of

securities. IDL-SGL is a separate account opened by the RTGS participants where

the eligible stock of collateral for IDL purpose is transferred from their

proprietary SGL account.

• Securities Collateral - If sufficient cover of securities is available in the

member's IDL-SGL account, the securities are blocked and positive confirmation

sent back to the RTGS system. In case of shortage of securities, a negative

confirmation is sent to the RTGS system.

• IDL release - When a positive confirmation is received from the SSS, RBI

releases the necessary amount into the member's settlement account so that the

queued transactions can be processed. The rest of the processing would be as

described earlier. In case of receipt of negative confirmation, the transaction is put

back into the queue to be processed again later.

Types of Membership: RBI provides 5 types of membership for RTGS, viz. type A, B,

C, D and E. Each of these types of membership has different features and criteria. Type A

is for scheduled commercial banks, type B for primary dealers, type C for those dealing

in call money market, type D for clearing houses and type E for special institutions.


OBJECTIVES OF THE STUDY

The objectives of this project are as follows:

• Understanding the meaning of payment systems and also study about the various

payment systems operating in India.

• Understanding RTGS and its uniqueness, the Access Criteria and the Business

Operating Guidelines given by RBI to user banks.

• Doing a comparative study of the Indian RTGS system with that of the RTGS

systems followed in other major economic powers and analyzing where does

Indian RTGS stand in comparison to them.

• Understanding how RTGS is implemented at the user banks, operational

procedures for initiation and reconciliation of RTGS transactions and various

technical / non-technical issues associated with it.

• Finding about the various issues that the user banks may have with RBI and other

banks with regard to the operations of the RTGS payment system.

• Giving suggestions on the overall improvements in the RTGS payment system, as

reported by the various RTGS user banks.

To achieve the following objectives, the project has been carried out under three parts:

• A comparative study of the Indian RTGS system with that of the various forms of

RTGS systems followed in other major countries has been done. This comparison

is done primarily with respect to the volume and value of the RTGS transactions

carried out by these countries, the value expressed as the number of times of the

country’s GDP, year of implementation and the number of participants.

• A visit to 4 banks was done to understand the RTGS system from a user banks’

perspective and also to understand how they implement the RTGS system.

• A questionnaire was designed and the responses of 25 RTGS user banks were

taken to find about the various aspects of RTGS implementation at their bank, and

also about any other issues the banks face with regard to the RTGS system.


Brief about the organization where the study was carried out

The Reserve Bank of India is the central bank of India, and was established on April 1,

1935 in accordance with the provisions of the Reserve Bank of India Act, 1934. The

Central Office of the Reserve Bank was initially established in Kolkata but was

permanently moved to Mumbai in 1937. Though originally privately owned, the RBI has

been fully owned by the Government of India since its nationalization in 1949. The

Reserve Bank of India was set up on the recommendations of the Hilton Young

Commission. The commission submitted its report in the year 1926, strongly

recommending the establishment of a Central Bank in India. The main reason for this

recommendation was the then existing ‘inherent weakness’ in the Indian system due to

the control of currency and credit being in two different hands. The Government

controlled the currency while the Imperial bank controlled the credit situation in the

country and such divided control led to co-ordination problems of currency and credit.

Hence, the Reserve Bank of India was set up to perform solely the central banking

functions.

The Preamble of the Reserve Bank of India describes the basic functions of the Reserve

Bank as to regulate the issue of Bank Notes and keeping of reserves with a view to

securing monetary stability in India and generally to operate the currency and credit

system of the country to its advantage. The RBI has the mandate to ensure that prices

remain stable and there is enough money for economic growth. The bank also works

towards keeping the banking system safe and stable. The main functions of the Reserve

Bank of India are:

1. Monetary Policy 6. Overseeing the payment system

2. Currency Management 7. Exchange rate & reserve management

3. Banker to banks 8. Management of foreign exchange

4. Banker to government 9. Developmental functions

5. Financial regulations & supervision 10. Data and research


Functional working of the Deposit Accounts Department of RBI

The Reserve Bank acts as a banker to scheduled banks, state co-operative banks and other

approved quasi-govt. institutions, in terms of Section 17 of the RBI Act, 1934 besides

being banker to Central and State Governments. The Reserve Bank's responsibilities

include, in addition to the Central banking functions, the development of an adequate and

sound banking system for catering to the needs of trade, commerce, industry and

agriculture. The Banking Department of the Bank is entrusted with handling of

transactions arising from the Bank's obligations as banker to Government and to the

banks. The Deposit Accounts Department (DAD) is the nucleus of the Bank's accounting

system where all the classified accounts of the Bank are maintained in a systematic

manner. All transactions effected in the various departments of the Bank on any day will

finally be reflected in the different accounts maintained in the DAD.

Sections of the Deposit Accounts Department (DAD):

• Current Accounts Section

• Remittance Section

• Loans and Advances Section

• Charges Account Section

• Administration Section

• Foreign Accounts Section

• Stationery Section

All the above mentioned sections perform various functions. The Current Accounts and

the Remittance Section of the Deposit Accounts Department is important from this

project’s point of view. The Current Accounts Section maintains current accounts of

Scheduled/Non-Scheduled Banks, State Cooperative Banks, Financial Institutions,

Foreign Central Banks, International Financial Institutions, Mutual Funds, Primary

Dealers, Satellite Dealers or any other institutions as approved by the Central Office.


The Remittance Section primarily looks at the Issue and Encashment of Telegraphic

Transfers, Mail Transfers and Drafts. This section also monitors the RTGS operations of

the RBI. The Deposit Accounts Department works in close co-ordination with the

Department of Payment and Settlement Systems (DPSS) of the RBI. The DPSS is

responsible for regulation and oversight on the Payment and Settlement Systems which

encompass the cheque based clearing systems managed by the Reserve Bank and other

commercial banks, Electronic Clearing Service (ECS), Electronic Funds Transfer (EFT)

System, the inter-institutional Government Securities clearing, the inter-bank foreign

exchange clearing as also the RTGS.

The functions of the Department include the following:

• Formulation of Payment and Settlement Systems policies.

• Regulation of Payment and Settlement Systems.

• Supervision of Payment and Settlement Systems.

• Implementation of the Core Principles relating to payment systems (as enunciated

by the Bank for International Settlements).

• Designing, developing and integrating Systemically Important Payment System

(SIPS) projects and / or facilitating such implementation.

• Monitoring the operations of payment and settlement systems.

Relevance of this project in context of overall company objectives and strategies:

From this project, the Deposit Accounts Department of the Reserve Bank of India will

get to know how the RTGS system is implemented in the user banks and how they

perform the operational and troubleshooting tasks. RBI will also get to know about the

various issues or problems that the user banks face in the RTGS system and that will help

it in resolving those issues. Finally, the comparative analysis of the Indian RTGS with

that of other major countries’ RTGS system will help RBI in determining where does the

Indian RTGS stand in comparison to other countries, and accordingly necessary steps can

be taken for the overall improvement in the system.


METHODOLOGY FOLLOWED

The various steps involved in the project and the corresponding methodology has been

mentioned herein:

• Study about the various payment systems operating in India : Various

materials given by the project guide and the RBI website were used to study about

the various payment systems operating in India (including RTGS). After

completing the study, a power point presentation was made on the topic.

• Comparative analysis of the Indian RTGS with that of other countries’

RTGS: The methodology followed in this step is to search about the various types

of RTGS system used in other countries. Primarily the business details of the

RTGS system for various countries were taken. These details include the system

name, year of implementation, operator’s name, number of participants, volume

and value of transactions carried out in a year. This data was collected from

various sources such as reports by World Bank, Bank for International

Settlements, etc, and from the website of Central Banks of various countries. To

have a meaningful conclusion from this data, the value of RTGS transactions

carried out by the countries have been expressed as the number of times of GDP

of that country. This comparison has been done for 75 countries including India.

• Taking feedback from the member banks about the RTGS system: For this

step the objective is to take a feedback from the RTGS member banks, finding out

whether they have any issues with RBI or other banks with regard to the RTGS

system and what suggestions they have for improvement in the RTGS system.

The secondary objective was to understand how RTGS is implemented at various

member banks and what the modus operandi of RTGS in their bank is. This

included studying about the operational procedures for initiation and

reconciliation of RTGS transactions and various technical / non-technical issues

associated with it. For this purpose, a questionnaire was prepared in consultation

with the project guide and 25 banks were visited to get their feedback.


TABULATION AND FINDINGS

Part I: Comparison of Indian RTGS with that of other major countries

This comparison has been done to gauge the performance of the Indian RTGS system vis-

à-vis other major countries. The comparison has been done primarily with respect to the

volume and value of RTGS transactions carried out by these countries in the year 2007

(since the latest data for the year 2008 was not available for most of the countries). Now

since the volume and value of transactions may also depend on the size of the country,

the comparison has also been done with respect to the Turnover of GDP (i.e. the value of

RTGS transactions / GDP of that country) and the number of participants.

The overall comparison is done for 75 countries including India. The data has been taken

from many sources including reports by World Bank, reports by Committee of Payment

and Settlement Systems (CPSS) of the bank for International Settlement, reports by

European Central Bank, etc., and also from the website and annual reports of the Central

bank of various countries. Due to space constraints, the full table containing all the

findings cannot be shown in this report. However, the major findings and observations

from the collected data are shown hereunder:

In terms of overall comparison for 75 countries, India’s rank in terms of various

parameters of RTGS is as follows:

• Volume of RTGS transactions: 23rd out of 75 countries.

• Value of RTGS transactions: 35th out of 75 countries.

• Turnover of GDP: 52nd out of 75 countries.

However, this overall comparison has certain limitations. Firstly, the data available was

for the year 2007, when Indian RTGS used to handle approximately 23000 transactions


daily. Today it handles approximately 100000 transactions daily. This growth is primarily

because India’s RTGS started quite late as compared to other countries. 32 out of top 40

countries (in terms of Turnover of GDP) started their RTGS system on or before the year

1999, hence the RTGS usage in those countries would have been higher than India.

If the current data would have been available, the above situation would have been quite

different as India’s volume and value of RTGS transactions has increased quite

significantly since 2007. However, working within the data that was available, a

meaningful comparison has been made by segregating the data into 4 parts:

• Countries that implemented their RTGS system prior to 1997: Out of 18

countries in this comparison, India’s rank in terms of volume of RTGS

transactions is 9th; rank in terms of value of RTGS transactions is 14th; and rank in

terms of Turnover of GDP is 16th.

• Countries that implemented their RTGS system between 1997 and 1999: Out

of 21 countries in this comparison, India’s rank in terms of volume of RTGS



• Countries that implemented their RTGS system between 2000 and 2002: Out

of 20 countries in this comparison, India’s rank in terms of volume of RTGS



• Countries that implemented their RTGS system after 2002: Out of 19

countries in this comparison, India’s rank in terms of volume of RTGS

transactions is 3rd; rank in terms of value of RTGS transactions is 2nd; and rank in


Since Indian RTGS system started after the year 2002 (year 2004 to be precise), the

graphs relating to only those countries that started their RTGS system after the year

2002 is shown hereunder.


• Comparison in terms of volume of RTGS transactions in 2007

Observations: Looking at the above graph, one can easily identify that the volume of

RTGS transactions carried out in Serbia is by far the highest among the countries that

implemented their RTGS system after the year 2002 (close to 6 times of that of Mexico,

the country with the second highest volume of RTGS transactions). India ranks 3rd in this

parameter.

169630.00

29471.00

2097.83

239.15

0.00

920.00

5840.00

45.73

91.46

167.90

270.00

704.70

120.00

40.00

281.99

1651.70

0.00

0.00

205.63

0.00 20000.0040000.0060000.0080000.00100000.00120000.00140000.00160000.00180000.00

Serbia

Mexico

Romania

Kenya

Kuwait

Bulgaria

India

Albania

Zambia

Chile

Lithuania

Bosnia

Slovenija

Hongkong (EURO CHATS)

West African States

Ukraine

Cyprus

Lietuvos

Sri Lanka

Volume of transactions in 2007 (in Thousands)

Volume of transactions in 2007 (in Thousands)


• Comparison in terms of value of RTGS transactions in 2007

Observations: Here we can see that Mexico is the country in which the value of RTGS

transactions is the highest among the countries that implemented their RTGS system after

the year 2002 (almost double of that of India, the country with the second highest value

of RTGS transactions). Serbia is way behind here, which means that the value per RTGS

transaction in Serbia is quite low.

729.91

12582.69

1452.68

235.99

799.23

294.10

6584.79

40.46

41.17

555.80

91.11

33.41

96.75

412.87

69.64

21.61

2.23

2.55

0.94

0.00 2000.00 4000.00 6000.00 8000.00 10000.00 12000.00 14000.00

Serbia

Mexico

Romania

Kenya

Kuwait

Bulgaria

India

Albania

Zambia

Chile

Lithuania

Bosnia

Slovenija


West African States

Ukraine

Cyprus

Lietuvos

Sri Lanka

Value of transactions in 2007 (in Billions of US Dollars)

Value of transactions in 2007 (in Billions of US …


• Comparison in terms of Turnover of GDP of RTGS transactions in 2007

Observations: Considering the different population size of the countries under

comparison, this parameter is necessary to judge the importance of RTGS in the

respective countries. Here we see that Indian RTGS ranks 7th in 19 countries. This is

primarily due to the large GDP of India as compared to the other countries in the study.

Still, we can conclude that Indian RTGS has performed well since its inception.

17.55

14.08

8.75

8.00

7.83

7.44

5.62

3.83

3.62

3.39

2.38

2.28

2.06

2.00

1.87

0.15

0.10

0.07

0.03

0.00 5.00 10.00 15.00 20.00

Serbia

Mexico

Romania

Kenya

Kuwait

Bulgaria

India

Albania

Zambia

Chile

Lithuania

Bosnia

Slovenija


West African States

Ukraine

Cyprus

Lietuvos

Sri Lanka

Turnover of GDP (Value of Transactions / Nominal GDP)

Turnover of GDP (Value of Transactions / Nominal …


Part II: Studying the Modus Operandi of RTGS in user banks

The objective here is to understand how various banks carry out the RTGS process at

their end, primarily the operational aspects related to initiation and reconciliation of

RTGS transactions; and also various technical/non-technical issues associated with it. For

this purpose, 4 major RTGS user banks were visited for 1-2 days each as per their

convenience and their RTGS process was understood. These visits were undertaken with

the following objectives in mind:

• To observe and learn about the operational procedures related to the initiation and

reconciliation of RTGS transactions.

• To understand the troubleshooting aspects of the bank (action plan at the times of

contingency situations), which includes their Disaster Recovery Plan and

Business Continuity Plan.

• Other technical/non-technical issues.

• Exploring the possible issues that the bank may have with RBI with regard to the

various aspects of the RTGS system.

• Also knowing about any issues that the bank may have with any other bank(s).

• Getting other miscellaneous information like number of RTGS enabled branches,

volume and value of transactions carried out by the bank on an average per day,

etc. which will help in a comparative analysis of various banks.

• Finally, to get the bank’s viewpoint on how can the RTGS system be improved,

i.e., asking for any suggestions the bank might have on the RTGS system.

The 4 banks visited for this study were: Citibank, HDFC Bank, State Bank of India and

ICICI Bank. In this section of the report, the transaction initiation, reconciliation process

and the troubleshooting aspects of these banks have been explained in detail, while other

aspects such as their feedback on RTGS and suggestions, etc. have been taken up in the

next section of this report, i.e. the feedback on RTGS from the member banks.


CITIBANK

1. The Initiation of a transaction and the transaction flow

Citibank’s customers can initiate an RTGS transaction either by going to any Citibank

branch or through Net Banking, i.e. by logging in through their internet banking user id

on the Citibank website. Apart from this the inter-bank transactions also take place.

Therefore, three types of transactions normally take place on RTGS:

• Customer transactions through branches

• Customer transactions through Internet Banking

• Inter-bank (Bank to Bank) transfer

The transactions are initiated on the Participant Interface (PI) provided to all Citibank’s

RTGS enabled branches. From there the transactions are routed to the IFTP server of RBI

via the main Gateway of Citibank. Once the transactions hit the IFTP server, the normal

procedure by RBI is followed (with respect to its Y-structure of the RTGS system). The

process can be understood through the following diagram:

Payment Credit

Instruction Advice

Sends Payment message Positive acknowledgement

RTGS Server

Recipient Bank’s Gateway

IFTP Server

Citibank’s Gateway

PI 1

PI 2

PI 3 PI 4


2. The Reconciliation Process

Step 1: Download the QLM Statement for the previous working day.

Step 2: Download the internally generated excel sheet for the same day.

Step 9: Mark the remaining transactions as “open exceptions” and identify the corresponding department to which they relate.

Step 8: Club all unmatched transactions. Knock off all queries that can be knocked off manually.

Step 4: Take into account the PI rejects and cancelled transactions in the QLM sheet.

Step 5: Import both these files into MS Access.

Step 3: Format both Excel sheets. Include transaction type in QLM sheet and UTR number in the other sheet.

Step 6: Run the three pre-specified queries and export the resulting tables to Excel.

Step 7: Update the department name in the file containing those transactions that are not matched.

Step 10: Circulate a mail and follow up with the concerned departments to resolve the open exceptions.


HDFC BANK


Like any other bank, HDFC has two types of transactions in RTGS: Customer

transactions and Inter-bank transactions. The customers of HDFC bank have several

modes of initiating an RTGS transaction. They are: walk-in customers, fax, email, retail

division customers. The process can be understood with through the following diagram:

Control Software

All customer and inter-bank transactions received through all modes are entered in this software and sent for further processing.

Authorization

Sign, amount, etc. are checked. Depending on the amount, one or two authorizations are required and released to the PI.

Flexcomp Inputting

Looks exactly like the PI. All RTGS requests are entered in this software and from here they are sent for authorization.

Liquidity Manager

If a transaction is of more than Rupees Hundred Crores, it will be stopped here and confirmation will be taken from treasury dept.

Participant Interface (PI)

The RTGS transfer request now comes to the PI of HDFC Bank and from here it is routed to the IFTP server of RBI.



The RTGS process at HDFC Bank is a fairly simple process. It involves checking three

accounts at the End of the Day (EOD). These accounts are: RTGS Settlement Account,

Customers’ Deferred Suspense Account and RTGS Interbank GL Account. Now the

characteristic of each of these accounts and their reconciliation is described as under:

• RTGS Settlement Account: This is a mirror account of HDFC’s account

maintained at the RBI. All debits and credits take place simultaneously. Hence at

the EOD, the balance in this account is always “Zero”. For this account, the

reconciliation is only to check whether the balance is zero after the EOD balance

is taken into account. If this balance is zero, the reconciliation is over as far as this

account is concerned. If the balance is not zero (which happens only in extremely

rare cases), that is considered to be an IT problem and the problem is solved with

co-ordination from the IT department.

• Customers’ Deferred Suspense Account: Those transactions that are not settled

through the STP (Straight Through Processing) because of a mismatch in name

and/or account number, etc. are automatically posted in this account. These

transactions are to be checked manually and then passed. The reconciliation for

this account is also limited to checking whether the balance in this account is zero

or not.

• RTGS Interbank GL Account: All the interbank transactions of HDFC bank are

passed through this account. The MNSB transactions from RBI and the EOD

balance etc. are also passed from this account. For reconciliation in this account,

the balance in UBS (which is HDFC’s internal system for interbank transactions),

must tally with the sum of the pending branch-wise telegraphic transfers and the

RBI’s MNSB and EOD balances. Sending a mail to the internal units solves any

discrepancy.


STATE BANK OF INDIA


Any transaction that is entered into the Core Banking System (CBS) of SBI follows the

maker-checker concept, i.e., one person will make the entry into the CBS and another

person will check and authorize the transaction. Once authorized, UTR number is

generated. This is noted on the form and given back to the customer. The complete

transaction flow for an outgoing message can be understood with the help of the

following diagram. Inward transactions too follow a similar procedure as that of an

outgoing transaction.

Customer fills up the RTGS funds transfer request form.

Remittance Amount and Charges are paid as per desired mode.

Data entry and its authorization in CBS System.

Data transmitted to Intra-day Liquidity Management.

Data transmitted to

the PI maintained at

Belapur.

Data flows through to the RBI’s IFTP and RTGS server.

Recipient Bank gets confirmation and credits Customer a/c.

Outgoing Message

Flow Chart



The RTGS Reconciliation process at State Bank of India is a fairly simple task,

considering the fact that each and every RTGS transaction is not knocked off using the

RBI statement. The reconciliation for the RTGS transactions on a business day is done on

that day itself after 7.30 pm (once the RTGS special window is closed by the RBI). The

complete procedure is explained below:

• After the RBI closes the RTGS window, the total number of Outward and Inward

messages is checked from the Participant Interface (PI), and also from the Intra-

day Liquidity Management (ILM) software.

• Now on a plain sheet of paper, some manual calculations have to be done,

primarily to match the number of inward and outward transactions in the PI and

ILM. Also, the total amount pertaining to the inward and outward transactions for

the day needs to be determined.

• Normally, the number of transactions in the PI and ILM do not match. Hence,

some adjustments have to be made from the number of transactions obtained from

the ILM. The MNSB transactions from RBI need to be deducted and the Rejected

transactions by the PI and the Group Payments made by SBI to its associate banks

need to be added to the outward transactions. For the inward transactions, the

MNSB transactions from RBI need to be subtracted from the number of

transactions obtained from ILM.

• During the process mentioned in the above step, the amounts pertaining to the

related adjustments are also adjusted and the total figure for the day’s outward

and inward transactions is obtained. This figure (for both outward and inward

transactions) needs to be matched with the total figure obtained from the Core

Banking System, which records all the inward and outward transactions for the

day. Both the figures SHOULD tally.


• After the above step, the officer responsible for reconciliation signs into the Core

Banking System of SBI (called as Bancslink), and authorizes two entries. One

entry is to debit RTGS outward account and credit to SBI main branch, and the

second entry is to credit RTGS inward account and debit to SBI main branch.

This is done since the Belapur office acts as an agent for the Main branch located

at Nariman Point, and hence above entries become necessary.

• Now in the CBS system, the balances in the following accounts need to be

checked:

� RTGS Rejected Transaction Account

� RTGS Intermediate Settlement Account

� RTGS Settlement Account

� RTGS Outgoing Settlement Account

� Bank Master Inward Account

� Bank Master Outward Account

• The balances in all the above accounts should be ZERO. If the balance is zero in

all these accounts, the reconciliation process is complete for the day. The whole

process of reconciliation takes about one hour.

If however the balance in any one or more of the above accounts is not zero, then further

action needs to be taken. It is required to find out from which department the payment

generated due to which the balances are not matching. Then depending on the situation,

necessary manual adjustments have to be made in order to correct the deficiency and to

make the balance equal to zero in the concerned account. The person in charge of RTGS

in SBI recounted a recent experience wherein in an outgoing transaction from SBI the

recipient had been credited twice by mistake (once manually and once by the system). So

the concerned transaction had to be reversed by obtaining necessary permission from the

senior officials of the recipient bank. Similarly, other entries that are not reconciled and

need further corrective action are dealt on case-to-case basis.


ICICI BANK


Like any other bank, ICICI has two types of transactions in RTGS: Customer and Inter-

bank. The several modes of initiating an RTGS transaction are:

� Walk-in customers: Any ICICI bank account holder can initiate request for an

RTGS funds transfer by walk-in at any bank branch.

� Internet Banking: Alternatively, customers can log into their Internet banking.

� Fax: In case a customer or his representative cannot personally come to the

branch, they can send a fax copy of the RTGS funds transfer request to the branch

in the specified format. However, this facility is provided ONLY to the corporate

customers who have FAX INDEMNITY with their account. Those who do not

have fax indemnity are asked to submit the original copy of the RTGS request.

Transaction flow for outward transactions

A transaction is initiated by entering the transaction details at Finacle, which is the core

banking system at ICICI. This system is used for creating and authoring an entry. From

Finacle the transactions go to the Participant Interface (PI) and then to the RBI server.

Transaction flow for inward transactions

All inward transactions received at the PI are passed through Name Matching Software.

From this software, a manager at ICICI bank can view the name of the beneficiary as

mentioned in the transaction details and against it the name of that beneficiary in the

Finacle system. Both these names have to be tallied manually and credit is allowed to the

beneficiary customer if the names match. However, if the names do not match then those

transactions are sent to the “Office A/c” where senior officials check them again.



At ICICI bank the process of reconciliation is carried out on the same day after the

special window is closed by the RBI at 7.30 pm. Reconciliation involves checking only

whether the number of transactions for inward and outward and the balance in the mirror

account maintained in Finacle tallies with the End of the day balance shown in the

Participant Interface (PI). If this balance matches, the reconciliation process is over for

the day. However if this balance does not match (which happens in extremely rare cases),

then all the transactions are checked manually against their physical instruments and it is

identified from where the mistake occurred. These are resolved by highlighting the

concerned transactions to various internal units and branches and by making necessary

manual adjustments.

Observations on these visits:

For initiation of a transaction and the transaction flow, HDFC Bank has the most

systematic process in place. The word Systematic is used because they use various

systems that perform different tasks. They have control software that checks for any

duplicate entries (a customer can mistakenly give 2 copies of the same request), and

liquidity management software that stops any transaction of a value of greater than Rs.

100 crores and takes necessary permission from the treasury department before passing

them. As far as the reconciliation process is concerned, Citibank has the most efficient

way of doing the task, as it has an automated system put in place (in MS Access) that

matches each and every entry in the RBI statement and Citibank’s internally generated

statement. Hence, the chances of errors are quite less as compared to manual

reconciliation. This also shows that Citibank has done an extensive research on how to

make its process better as compared to the other banks. Here one thing that needs to be

looked at by RBI is that many banks do not do automated reconciliation since RBI report

comes in ASCII format and cannot easily be converted into excel sheet format.


Part III: Survey on Banks’ feedback on RTGS System

This survey was conducted to get the member banks’ feedback on RTGS system,

identifying the problem areas where RBI can work towards improvement in the RTGS

system, and also to briefly understand the transaction process flow and reconciliation

process at these banks. Finally, the objective of the survey was to ask for suggestions

from the member banks for improvements in the RTGS system.

For this purpose, a questionnaire was prepared to obtain both qualitative and quantitative

information on various aspects mentioned above. The respondents were mainly the in-

charge of RTGS operations of various banks. In some cases, some specific information

related to treasury was obtained from the treasury department of these banks over the

telephone. The survey was conducted on 25 banks, and all the results shown here

represent the responses from these 25 banks only. Any exceptions to this have been

mentioned specifically against the concerned result. The banks that participated in the

survey are:

1. Citibank 14. Oriental Bank of Commerce

2. HDFC Bank 15. Saraswat Co-operative Bank

3. State Bank of India 16. Federal Bank

4. City Union Bank 17. Syndicate Bank

5. ICICI Bank 18. Dena Bank

6. United Bank of India 19. Indian Bank

7. Standard Chartered Bank 20. Kotak Mahindra Bank

8. Yes Bank 21. Bank of India

9. Bank of Baroda 22. Canara Bank

10. ABN Amro Bank 23. Corporation Bank

11. HSBC Bank 24. Union Bank of India

12. Axis Bank 25. ING Vysya Bank

13. Punjab National Bank


Classification of banks in the sample and their year of RTGS membership

The sample included 4 foreign banks, 7 private banks, 12 nationalized banks and 2 co-

operative banks.

Foreign Banks16%

Private Banks28%

Nationalised Banks48%

Co-operative Banks8%

Classification of Banks in the sample

Foreign Banks

Private Banks

Nationalised Banks

Co-operative Banks

Year 200488%

Year 20054% Year

20068%

Year of RTGS Membership

Year 2004

Year 2005

Year 2006


Number of RTGS enabled branches in India (Data taken from RBI website)

Observation and comments: State Bank of India has by far the largest number of RTGS

enabled branches, which is around 2.5 times of the number of RTGS enabled branches of

Punjab National Bank (the bank with the second largest number of RTGS enabled

branches). The banks among the lowest number of RTGS branches are ABN Amro Bank,

Citibank and HSBC Bank.

45

1440

11544

211

1381

971

88

115

1926

28

47

801

4445

1481

162

624

2060

651

1599

207

2504

2810

1047

2658

489

0 2000 4000 6000 8000 10000 12000 14000

Citibank

HDFC Bank

State Bank of India

City Union Bank

ICICI Bank

United Bank of India

Standard Chartered …

Yes Bank

Bank of Baroda

ABN AMRO Bank

HSBC Bank

Axis Bank

Punjab National bank

Oriental Bank of …

Saraswat Co-op Bank

Federal Bank

Syndicate Bank

Dena Bank

Indian Bank

Kotak Mahindra Bank

Bank of India

Canara Bank

Corporation Bank

Union Bank of India

ING Vysya Bank

Number of RTGS enabled branches in India

Series1


Volume of daily RTGS transactions (in April 2009, taking 23 working days)

Observation and comments: State Bank of India had the largest daily volumes in the

month of April 2009, followed by HDFC Bank, Punjab National Bank, ICICI Bank and

Axis Bank (in that order). Other notable banks include Bank of Baroda and Union Bank

of India. Saraswat Co-operative Bank, City Union Bank and United Bank of India

recorded the lowest volume.

4339

19022

25829

512

7347

538

3471

807

5114

1052

2400

7301

8017

3155

319

1220

2005

551

2122

1437

4382

2688

2841

5029

1950

0 5000 10000 15000 20000 25000 30000

Citibank

HDFC Bank

State Bank of India

City Union Bank

ICICI Bank



Yes Bank

Bank of Baroda

ABN Amro Bank

HSBC Bank

Axis Bank

Punjab National Bank

Oriental bank of …

Saraswat Co-op Bank

Federal Bank

Syndicate Bank

Dena Bank

Indian Bank

Kotak Mahindra Bank

Bank of India

Canara Bank

Corporation Bank

Union Bank of India

ING Vysya Bank

Daily Average Volume

Daily Average Volume


Value of daily RTGS transactions (in April 2009, taking 23 working days)

Observation and comments: In spite of being 2nd volume-wise, HDFC Bank leads the

way in terms of value of RTGS transactions, recording a value of more than double of

that of Punjab National Bank. Next highest are Union Bank of India, Axis Bank and State

Bank of India. Surprisingly, ICICI bank is the lowest in terms of Daily average value

among the banks in the survey.

114.52

466.15

223.61

2.93

119.64

8.35

163.43

24.87

30.10

33.56

44.51

102.45

54.81

13.45

9.94

7.22

23.82

6.95

11.51

19.23

30.98

32.71

61.82

37.54

21.74

0.00 100.00 200.00 300.00 400.00 500.00

State Bank of India

HDFC Bank


ICICI Bank

Axis Bank

Bank of Baroda

Union Bank of India

Bank of India

Citibank


Oriental bank of …

Corporation Bank

Canara Bank

HSBC Bank

Indian Bank

Syndicate Bank

ING Vysya Bank

Kotak Mahindra Bank

Federal Bank

ABN Amro Bank

Yes Bank

Dena Bank


City Union Bank

Saraswat Co-op Bank

Daily Average Value (in Rs. Billions)

Daily Average Value (in Rs. Billions)


Average Value per RTGS Transaction in April 2009 (Rs. In Lacs)

Observation and comments: In terms of Average Value per transaction, Union Bank of

India is the largest, followed by Standard Chartered Bank, Indian Bank and Bank of

India. State Bank of India and HDFC Bank are at 5th and 6th position respectively. The

banks with the lowest average value per transaction are HSBC Bank, Federal Bank and

ICICI Bank.

2639.49

2450.54

865.71

572.12

1628.35

1551.00

4708.14

3082.68

588.66

3191.09

1855.10

1403.31

683.73

426.22

3119.10

591.60

1187.95

1262.24

542.15

1337.73

706.88

1217.07

2176.07

746.58

1114.83

0.00 500.00 1000.001500.002000.002500.003000.003500.004000.004500.005000.00

State Bank of India


Axis Bank

Union Bank of India

Citibank

Oriental bank of Commerce

Canara Bank

Indian Bank

ING Vysya Bank

Federal Bank

Yes Bank


Saraswat Co-op Bank

Value per Transaction (Rs. In Lacs)

Value per Transaction (Rs. In Lacs)


Various means of initiating an RTGS transaction

Observation and comments: All the 25 banks in the survey have a walk-in facility, i.e. a

customer or his representative can walk-in to any of their RTGS enabled branches and

apply for initiating an RTGS transaction. 17 banks (68% of the sample) have Internet

banking facility, through which customers can log-on to their Internet banking module

and do an RTGS transaction himself. 18 banks (72% of the sample) have the fax facility,

whereby customers can send in a fax to the bank in case they are not able to come in

person, provided they have fax indemnity and the original RTGS request reaches the

bank before the end of the day. Only 4 banks in the sample provide email facility, while

other banks do not provide this facility. Other means include phone banking (Citibank),

Retail banking (HDFC bank), Cash Management Product (State Bank of India), Standing

Instruction (City Union Bank) and Straight Thru Bank (Standard Chartered Bank).

25

17

18

4

5

0 5 10 15 20 25 30

Walk-in

Internet Banking

Fax

Email

Others

Various means of initiating an RTGS transaction

Number of Banks


Initiation of an RTGS transaction and the process flow

All the 25 banks covered in the survey first enter the RTGS transaction details into their

internal system (usually their Core Banking System) to initiate an RTGS transaction. The

only exception to this is HDFC Bank, which has a control software used to identify

duplicate entries and for reporting to the treasury department. From the Core Banking

System, the banks send the information either to any other software that they might be

using, or to the Participant Interface (PI) provided by the RBI.

Observation and comments: 13 of the 25 banks covered in the survey use another

software apart from the Core Banking System. 9 banks out of these 13 use software for

liquidity management, which keeps a check on the banks’ liquidity and helps them in

determining when to use the Intra-Day Liquidity from RBI. Other notable software used

by banks include: (i) Name Matching Software in ICICI Bank checks the names as

mentioned in incoming RTGS messages against those in their records. (ii) Quaestor

Payment Hub (QPH) is used by some banks, which acts as an interface between the PI

and the Core Banking Solution. (iii) Structured Financial Messaging Service (SFMS) is

also used by some banks.

Yes 52%

No48%

Whether any other software is used

Yes

No


RTGS Reconciliation process

In this comparison, the objective is to briefly understand the process adopted by banks to

carry out their daily RTGS reconciliation. The questions in this regard pertain to when

the banks do their RTGS reconciliation, how the process is carried out, whether the

process is manual or automated, how any mismatch is identified and how it is resolved.

The graph below pertains to when the bank carry out their reconciliation process.

(Note: Data for Indian Bank and Kotak Mahindra Bank not available)

Observation and comments: Out of the 23 banks that answered this question, 16 banks

do their reconciliation on the same day after RBI closes the special window (7 - 7.30 pm).

The remaining 7 banks do their reconciliation on the next day. Some banks do the process

manually, while some have automated process (through the use of a system). Whether the

process is manual or automated is highlighted in the next graph.

Same Day70%

Next Day30%

RTGS Reconciliation happens on

Same Day

Next Day


(Note: Data for Indian Bank and Kotak Mahindra Bank not available)


do manual reconciliation, while 3 banks have automated process for reconciliation. Out

of these 20 banks that do manual reconciliation, 16 banks do in on the same day, usually

by matching the number of entries for inward and outward transactions and their

respective balance from their Core Banking System / Liquidity Management software

and from Participant Interface (PI). If the balances are matching, the process is over;

otherwise the causes of mismatch are found out and resolved accordingly.

Only 3 banks - Citibank, HSBC Bank and United Bank of India have automated process

for Reconciliation. Of these, United Bank of India does this through MS Excel; Citibank

uses MS Access, while HSBC Bank has developed an internal system especially for

reconciliation purposes. The process for these 3 banks is to knock off common

transactions from internal statement and RBI statement and look for those transactions

that need resolution. They are then resolved by highlighting them to various units and

following up with them.

Manual87%

Automated13%

Reconciliation process

Manual

Automated


Whether the Current timings for RTGS window are adequate/sufficient.


consider the RTGS window timings to be adequate/sufficient (for Customer and Inter-

bank transactions as well as the special window). The remaining 8 banks feel an

extension in timings should be given. The ideal RTGS window timings according to these

banks are mentioned below:

• During month ends: According to HDFC Bank and HSBC Bank, timings for

Customer transactions during month ends should be extended at least till 5.30 pm.

• On Saturdays: According to Bank of Baroda, Oriental Bank of Commerce,

Syndicate Bank, Canara Bank and Citibank, the timings for Customer transactions

on Saturdays should be at least till 1 pm.

• On Weekdays: According to Axis Bank, Union Bank of India and ING Vysya

Bank timings for Customer transactions on all weekdays should be till 6 pm.

• Others: According to Canara Bank the special window should be done away with.

Adequate68%

Not Adequate32%

RTGS Window timings

Adequate

Not Adequate


Whether banks face any problem in connectivity to RBI server


said that they face connectivity problem to RBI server. But most of these banks face

connectivity problem in very rare cases, which is as low as once or twice in a month.

Standard Chartered Bank, ABN Amro Bank and Indian Bank face connectivity problem

only when volumes are high (particularly during the month ends). The only notable

responses to this issue were that of State Bank of India and Yes Bank. SBI faces

connectivity issue every alternate Saturday on an average, while Yes Bank faces

connectivity issue at least twice a week. However, considering the responses from all the

banks in the survey, this issue is quite normal and in general banks face the connectivity

issue only sometimes. It must also be noted that many banks are wary about connectivity

becoming a problem when the High Value clearing is done away with and many of the

transactions from High Value converting to RTGS, thereby increasing the volumes of

RTGS transactions.

Yes56%

No44%

Whether any Connectivity problem is faced

Yes

No


Other Parameters

• Other Banks associated with these banks for RTGS: None of the banks in the

survey has any other bank associated with it to carry out RTGS transactions. The

only exception is the Union Bank of India, which said that they have a tie-up with

Bank of India to carry out RTGS transactions on their behalf at the time of crisis.

• Charges from customers for RTGS transactions: All the 25 banks in the survey

charge the same amount from their customers for RTGS transactions as mandated

by the RBI. For transactions of a value of less than Rs. 5 Lacs, Rs. 25 per

transaction is charged; and for transactions of a value of greater than Rs. 5 Lacs,

Rs. 50 per transaction is charged from the customers (plus the applicable service

tax). However, some banks do not charge anything from some customers for

RTGS transactions. They are: HDFC Bank, ICICI Bank, Standard Chartered

Bank, Yes Bank (Internet Banking is free), Kotak Mahindra Bank and Citibank.

Hence we see that most of the private banks in the survey do not charge anything

from some premium customers for carrying out RTGS transactions.

Issues with RBI

None of the banks in the survey said that they have any issue with RBI or any other bank

as far as RTGS is concerned. Only Citibank mentioned that for most of the days in the

month of April, it did not receive the RTGS statement from RBI. But it was the first time

it happened in the last 5-6 years and that too due to some technical problem, so they

consider it to be a one off thing and do not really treat this as an issue. The only other

bank to mention any issue was United Bank of India. This bank also said that sometimes

they do not receive the RBI statement via email. The most recently it happened was on

8th, 9th and 10th June 2009. Looking at the overall picture, it can be said that the RTGS

member banks are more or less satisfied with the way things are going in RTGS. Some

suggestions have been given by some banks for overall improvement in the RTGS

system, which have been mentioned herein.


PERSONAL OBSERVATIONS AND RECOMMENDATIONS

During the visit to various banks and interaction with various representatives of these

banks, it was felt that there are some things that the banks are concerned/apprehensive

about in RBI’s RTGS System. The following points give an overview of those issues and

they can be resolved if it is feasible on RBI’s part to do that:

• Due to the High Value Cheque Clearing being phased out by RBI, the banks

expect a huge jump in their volumes of RTGS transactions. At the same time,

some banks are apprehensive whether RBI’s infrastructure would be adequate

enough to handle such large volumes, and they recommend RBI to be equipped

and ready for such eventualities.

• Three of the banks in the survey said that they sometimes find it very difficult to

co-ordinate with various banks in case some of their RTGS transactions are not

settled or some clarification is required from other banks. They also said that RBI

has been taking initiatives to get the details from all banks regarding their RTGS

cell, the name of the contact person, contact details, etc.; but it has never been

implemented properly. All such details from all RTGS member banks should be

put up on the RBI website.

• The timings for RTGS windows is mostly adequate (as told by various banks), but

5 banks in the survey want the Customer timings on Saturdays to be increased till

1 pm, since on Saturdays the branches start operations at about 9.30 to 10 am and

they feel the timings are too short to carry out Customer transactions on

Saturdays. If feasible, it can be increased to 1 pm.

• A few banks also mentioned that they cannot do automated reconciliation since

the RBI statement does not come in excel format and hence lot of manual wok is

involved. If the technicalities permit, the RBI report can be sent in as excel format

to make the banks’ job easier.


LIMITATIONS OF THE STUDY

One of the biggest limitations of this study was the non-availability of recent data for the

country wise RTGS comparison. All the data pertaining to the volume and value of

RTGS transactions carried out by various countries is for the year 2007. The data for

2008 was available for only a very few countries, hence a detailed comparison could not

have been made for the year 2008. India’s volume and value of RTGS transactions has

increased by huge margins currently as compared to that in 2007, hence a recent

comparison could have given a different picture. For many growing economies such as

China and South Africa, the data was not available even for 2007; hence these countries

had to be left out of this comparison. As far as the survey of RTGS member banks is

concerned, the major limitations were covering only 25 banks out of 102 member banks

and non-availability of information in some of the parameters for some banks.

SCOPE FOR FUTURE IMPROVEMENTS

For future improvements in this project, it is necessary to have the recent data (preferably

for the year 2008 or 2009) so as to give a more meaningful comparison of the

performance of RTGS for various countries. This information could be available in a

report by World Bank titled “World Bank, Payments systems worldwide: a snapshot -

outcomes of the global payment systems survey 2010 (Vol.1&2)”, which is expected to

release in January 2010. The 2008 edition of this report had data for 112 countries’ RTGS

performance (value and volume wise) for the year 2006, so the same can be expected for

the 2010 edition of the report. The report is easily downloadable from the World Bank

website. Other reports by European Central Bank, International Monetary Fund,

Committee of Payment and Settlement Systems (CPSS) of the Bank for International

Settlements (BIS) can also be very useful. To further improve on the survey on RTGS

member banks, more number of banks can be covered in future to give a better

representation of the overall population.


APPENDIX – QUESTIONNAIRE USED FOR THE SURVEY

Name of the Bank ________________________________________________

1. Since when have you been an RTGS Member bank? _____________________

2. Number of RTGS enabled branches of your bank in India. _____________________

3. What are the different means through which a customer can apply for initiating an

RTGS transaction at your bank? (Tick as many as applicable)

� Walk-in at an RTGS enabled branch

� Internet Banking

� Fax

� Email

� Any Other (Please specify) _________________________

4. For initiating an RTGS transaction, do you feed the transaction information directly to

the Participant Interface (PI) provided to you by the RBI? (If yes, go to Question no. 6)

� Yes

� No

5. (a) Which other system/software do you use to enter information for initiating an

RTGS transaction? ________________________________________________________

(b) What are the functions/uses of this software? ______________________________

________________________________________________________________________

6. Any other system/software used by your bank for any other purpose related to RTGS?

What are the functions/uses of this software? (Leave blank if not applicable)

________________________________________________________________________

________________________________________________________________________


7. Do you have a backup in case your main RTGS unit at Mumbai cannot work due to

any reason? (If no, go to Question no. 10)

� Yes

� No

8. In which places do you have the backup?

� Within Mumbai (Specify the location) ______________________________

� Outside Mumbai (Specify the cities) ______________________________

9. (a) How often the backup servers have been utilized for undertaking the job of primary

servers? ________________________________________________________________

(b)When was the last time these units had to work? ________________________

________________________________________________________________________

10. When do you do the RTGS Reconciliation?

� Same day after RTGS window closes

� Next day

11. How is the reconciliation process carried out? (Select the appropriate option and

mention briefly about the reconciliation process)

� Manually ______________________________________________________

_____________________________________________________________________

� An in-house application specially developed for reconciliation purpose ______

_____________________________________________________________________

� Any other ______________________________________________________

_____________________________________________________________________

12. How do you identify the un-reconciled transactions that are pending resolution?

________________________________________________________________________

________________________________________________________________________


13. How many un-reconciled transactions are identified on an average on a daily basis?

________________________________________________________________________

14. How do they get resolved?

________________________________________________________________________

________________________________________________________________________

15. How long does it take do the complete reconciliation process? __________________

16. Is any other bank/s associated with you, which participates in the RTGS system

through your bank? Yes / No

If yes, please specify the name/s of these bank/s ______________________________

17. Do you think the current timings for RTGS window specified by RBI are

convenient/adequate? (Please tick the appropriate option) Yes No

� For Customer Transactions

� For Inter-bank transactions

� Special Window (7 – 7.30 pm)

18. (Answer this Question only if the answer to Question no. 17 is “No” for any of the

three options) What should be the ideal RTGS window timing according to you?

� For Customer Transactions ______________________________

� For Inter-bank transactions ______________________________

� Special Window (7 – 7.30 pm) ______________________________

19. What is the amount that you charge your customers for carrying out each RTGS

transaction through your bank?

Charges (in Rs.)

� For transaction amount of Rs. 1 Lac to Rs. 5 Lacs __________________

� For transaction amount of greater than Rs. 5 Lacs __________________


20. What is the Average volume of RTGS transactions handled by your bank in a day?

________________________________________________________________________

� Of these, Number of Inward transactions ______________________________

� Number of Outward transactions ______________________________

21. What is the Average value of RTGS transactions handled by your bank in a day?

________________________________________________________________________

� Of these, Value of Inward transactions ______________________________

� Value of Outward transactions ______________________________

22. Do you face any problem related to connectivity to RBI’s RTGS server? Yes / No

If yes, how often do you face this problem? (Please be as specific as possible)

________________________________________________________________________

23. Any other issues with RBI related to RTGS only? (Please specify in detail)

i. __________________________________________________________________

__________________________________________________________________

ii. __________________________________________________________________

__________________________________________________________________

24. Any issues/problems with any other bank/s related to settlement of RTGS

transactions? ____________________________________________________________

________________________________________________________________________

25. Please provide any suggestions for improvement in the RTGS system.

i. __________________________________________________________________

ii. __________________________________________________________________

Name of the Respondent ____________________ Signature _____________________

Designation ____________________ Date _____________________


BIBLIOGRAPHY

The various sources of information used in this project are:

• Various materials provided by the project guide on the various payment systems

operating in India (including RTGS). Apart from this material, the RBI website

www.rbi.org.in and the RBI website for staff training www.ekp.rbi.org.in were

also used.

• For the study on comparative analysis, the website of the Bank of International

Settlements www.bis.org was the main source of information. The links on the

web page www.bis.org/cpss/paysysinfo.htm were used to find the necessary

information.

• A Report by the World Bank “World Bank, Payments systems worldwide: a

snapshot - outcomes of the global payment systems survey 2008 (Vol.1&2),

January 2008” was referred to.

• Various reports by the Committee on Payment and Settlement System (CPSS) of

the Bank for International Settlements titled “Statistics on Payment and

Settlement Systems in Selected Countries – Figures for 2007”; “Payment and

Settlement Systems in Selected Countries”; “New Developments in Large Value

Payment Systems”, etc. were also referred to.

• The RTGS performance report on the website of European Central Bank was used

to find the data for the Euro Zone Countries.

• Websites of other banks such as Citibank, State Bank of India, HDFC Bank, etc.

are also referred to sometimes for general purposes.

• Apart from this, search engines www.google.com, www.en.wikipedia.org and

various other search engines were also used for finding any miscellaneous

information.

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