06 May, 2017
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Payment Settlement in India
In India payment system can be classified into three types i.e.
Paper Based Payment System,
Electronic Payment System and
Other Payment System.
1. Paper Based Payment System
Paper Based Payment System comprises of:
A) Cheques – A cheque is a negotiable instrument that is used for payments and settlements in India.
There are three parties involved to a cheque:
• Drawer- The person who holds an account in a certain bank and draws a cheque to make payment.
• Drawee- The person to whom the cheque has been drawn
• Payee- The party who represents the cheque for receiving the payment.
B) Bank Drafts- It is also a negotiable instrument governed by the Negotiable Instrument Act 1881. It is a facility offered by the bank to its account holders only. A bank draft is a payment made by bank on the behalf of bank.
2) Electronic Payment System- In 1990 RBI took initiative for the electronic clearing service in order to enhance better payment and settlement system in India. Electronic Payment System in India can be classified into two types such as Gross Settlement System and Net Settlement System.
A) RTGS (Real Time Gross Settlement System) – RTGS is a real time and gross settlement system. Real Time means settlement of the transaction is start at the time it received. Gross Settlement means transactions are individually processed. No other transaction can bunch with other. The transaction is recorded in the books of RBI so it is final and irrevocable transaction.
In RTGS, there is minimum limit for the transfer of money is Rs 200,000 and there is no maximum limit for the transfer of money.
Customers can avail facility of RTGS between 9:00 am to 4:30 pm on weekdays and on Saturdays from 9:00 am to 2:00 pm
In order to enter into RTGS transactions the bank must have CBS (Core Banking Solution) which is assigned to enable bank and branches.
B) NEFT (National Electronic Fund Transfer) – NEFT is introduced by RBI in 2005, it enables individuals, firms and corporate to transfer funds from any bank branch to any individual, firm or corporate.
In NEFT, transfer is done on the hourly basis. There are twelve settlements from 8 am to 7 pm on weekdays and six settlements from 8 am to 1 pm on Saturdays.
There is no maximum and minimum limit in NEFT for the transfer of funds in India.
In order to enter into the RTGS the bank must be enable for NEFT.
C) NECS( National Electronic Clearing Service)Credit – In 1990s RBI introduced ECS (Electronic Clearing Service) for the settlement of repetitive transactions such as salary, interest and dividend payment. It facilitates customer account to be credited on the specified value date. Presently it is available at all major cities in the country. In 2008, the RBI launched a new service i.e. National Electronic Clearing System. It facilitates all CBS bank branches to participate in the system irrespective of their location across the country.
D) NECS (National Electronic Clearing Service ) Debit – It facilitates consumer to make routine and repetitive payments by mandating bank branches to debit their accounts. There is no minimum and maximum limit for the transfer and it is available for all the major cities in the country.
E) IMPS (Immediate Payment Service)– National Payments Corporation of India took up the initiative to set up immediate payment service. In this mechanism money can be transferred immediately from one account to another account, within the same bank or accounts across other banks.
F) UPI(Unified Payment Interface) -It is officially launched by National Payment Corporation of India under RBI for instant interbank real time transactions using android apps. With this immediate money transfer can be done through mobile. It is single application for accessing different bank accounts
3) Other Payment System –
A) Mobile Banking System – In 2008 RBI brought set of operating guidelines on mobile banking for banks. According to that only banks which are licensed and supervised in India and have physical presence in India are allowed to mobile banking after necessary permission from RBI.
B) ATMs ( Automatic Teller Machines) – ATMS are electronic banking outlets that allow customers to complete basis transaction without visiting a bank branch. Saving bank customers can withdraw cash from any bank terminal up to 5 times in a month without being charged.
Types of ATM in India
• Bank’s Own ATMs – These are owned and operated by the owner bank and carry the bank’s logo.
• Brown Label ATMs – These ATMs are not owned by the sponsor banks. They are owned and operated by third parties
• White Label ATMs – These ATMS are owned and operated by Non-banking Company and serve the customer of all banks.
C) Point of Sale Terminal– It enables customers to make payment for purchase of goods and services by means of credit and debit cards. To facilitate customer convenience the bank also permitted cash withdrawal using debit cards issued by banks at POS terminals.
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