Deputy General Manager s1

Date: 24/05/2010

Mr. A G Ray Deputy General Manager, Reserve Bank of India Department of Payment and Settlement Systems Central Office, 14th Floor, Central Office Building, S B Marg, Mumbai 400 001

Reference: - Your letter DPSS (CO) RTGS No. 2120/04.04.002/2009-10 of 31 March 2010 Subject: Liquidity management issues for brokerage houses

Dear Sir,

We refer to your letter under reference addressed to the undersigned. We thank you for your prompt reply. We submit our reply to the various points raised in your letter under reference.

We now request for a personal meeting with our team to clarify the situation existing in respect of RTGS and NEFT facilities for capital market requirements. We understand and appreciate that the RBI is managing the systems as efficiently as it can under the prevailing circumstances.

1. We are indeed encouraged that RBI has mandated to pass on credit in respect of an RTGS transaction to the account of the beneficiary within two hours after initiation of the transaction. However, our experience has shown that credit is received often beyond two hours. We shall be grateful if systems are devised to ensure that Banks do strictly meet two hours deadline.

2. There is no doubt that there is a considerable increase in the use of RTGS and NEFT transactions. The brokers are actively using the facilities. Nevertheless, usage of RTGS and NEFT facilities in the Capital Market is lagging and it is for this reason, we are seeking active support from RBI.

of 3 3. Brokers face difficulties in meeting their obligations due to delay in receiving clients funds. In fact, many of the branches of nationalized and other scheduled banks are not equipped to handle RTGS transaction in tier 2 and tier 3 cities. Even the branches of major banks in suburban Mumbai are not equipped to handle large numbers of transactions. We have a case when a major bank refused to accept more than five RTGS transactions from a single entity. It is not merely a case of timings; it is a case of insufficient trained staffing.

4. We request a joint meeting between major banks and our association under the aegis of the RBI to discuss issues threadbare and to work jointly so that the process of encouraging RTGS & NEFT is further smoothened.

5. We suggest that banks implement a system similar to chequebook to fill in NEFT and RTGS transaction instructions. It should be mandatory for Banks to send RTGS/NEFT leaves along with cheque leaves or in the form of a separate booklet in a fully bound form .This would have all the required fields preprinted / bar coded. The sender would only require filling in the details of the beneficiary, similar to a cheque transaction. This would not only standardize the process but there would be a proper audit trail. Besides this will save time and provide for efficiency.

6. We refer to your statement that there is a cost implication to RTGS and NEFT transactions and such service cannot be offered free of cost. We do not expect any service provided free of charge. Nevertheless, RTGS and NEFT transactions are a replacement of normal cheque mode of transactions, particularly the discontinued ‘high value cheque’, which are in the nature of free services.

7. We seek speedier clearance of inter-city and intra-city cheque under the core-banking concept. It seems to us that the banks are delaying clearance merely to use the surplus ‘end of day’ free float available to them. This is highly undesirable. If the banks desire to charge for the free services then the banks should be also willing to extend the service timings and not resort to delays in order to use the free float available at end of day.

of 3 8. We submit that your perception on ‘T+2 settlement cycle for equities provides for sufficient time for brokers to fund their accounts’ is incorrect. We reiterate that the difficulty lies in funds movement by CLIENTS to the brokers account particularly for margin calls. The NEFT and RTGS systems do not really address the problem particularly after the discontinuance of High Value Cheque. The average client is not equipped to transact online. He certainly cannot use the unsafe internet cafés for banking transactions. We need to explore alternatives.

9. We thank you for your suggestion that net enabled ATM can originate NEFT transactions. We will certainly approach the settlement banks to initiate the facility.

10. We reiterate that some banks still do not follow the practice of providing the name of the sender in the beneficiary account statement.

11. Lastly, In view of the foregoing submissions, we request you for a personal meeting to explain our position and bring more clarity on the above issues.

Warmest Regards

For Association of National Exchanges Members of India (ANMI)

Ishaq Merchant Secretary