Payment, clearing and settlement systems in India CPSS – Red Book – 2011 145 India Contents List of abbreviations..............................................................................................................151 Introduction...........................................................................................................................153 1. Institutional aspects.....................................................................................................154 1.1 The institutional framework ................................................................................154 1.1.1 Regulatory institutions...............................................................................154 1.1.2 Legal framework .......................................................................................156 1.2 The role of the central bank ...............................................................................158 1.2.1 Note issuance ...........................................................................................158 1.2.2 Payment and settlement services.............................................................158 1.2.3 Oversight...................................................................................................162 1.2.4 Cooperation with other institutions............................................................163 1.3 The role of other private and public sector bodies .............................................164 1.3.1 The Indian Banks’ Association..................................................................165 1.3.2 The Clearing Corporation of India Limited ................................................165 1.3.3 India Post..................................................................................................166 1.3.4 The Institute for Development and Research in Banking Technology ......166 1.3.5 National Payments Corporation of India ...................................................166 1.3.6 Foreign Exchange Dealer’s Association of India ......................................166 1.3.7 Fixed Income Money Market and Derivatives Association of India...........167 1.3.8 The stock exchanges................................................................................167 1.3.9 Securities depositories..............................................................................167 2. Payment media used by non-banks ............................................................................168 2.1 Cash payments ..................................................................................................168 2.2 Non-cash payments ...........................................................................................168 2.2.1 Cheques....................................................................................................168 2.2.2 Credit transfers .........................................................................................169 2.2.3 Direct debit................................................................................................169 2.2.4 Payment cards..........................................................................................170 2.2.5 Point of sale (POS) infrastructure .............................................................171 2.2.6 ATM infrastructure and services ...............................................................171 2.2.7 Postal orders, money orders and retail services from India Post..............172 2.3 Recent developments ........................................................................................173 2.3.1 Rationalisation of service charges ............................................................173 2.3.2 Mandatory use of electronic mode of funds transfer.................................173 2.3.3 Internet/mobile phone banking..................................................................173 CPSS – Red Book – 2011 147 India 2.3.4 Remittance services................................................................................. 174 2.3.5 Role of intermediaries .............................................................................. 174 3. Payment systems (funds transfer systems)................................................................ 175 3.1 General overview .............................................................................................. 175 3.2 Real-time gross settlement system ................................................................... 176 3.2.1 Operating rules......................................................................................... 176 3.2.2 Participants .............................................................................................. 177 3.2.3 RTGS transaction types ........................................................................... 177 3.2.4 Settlement procedure and liquidity support.............................................. 177 3.2.5 Transaction processing environment ....................................................... 178 3.2.6 The RTGS system process flow............................................................... 178 3.2.7 Credit and liquidity risk ............................................................................. 178 3.2.8 Pricing ...................................................................................................... 179 3.2.9 Statistics................................................................................................... 179 3.3 Exchange and settlement system for foreign exchange transactions ............... 179 3.3.1 Ownership, governance and regulatory status of CCIL ........................... 179 3.3.2 Participants .............................................................................................. 180 3.3.3 Transactions handled............................................................................... 180 3.3.4 System operating procedure .................................................................... 181 3.3.5 Clearing of trades and settlement obligations .......................................... 181 3.3.6 Settlement procedure............................................................................... 181 3.3.7 Risk management .................................................................................... 182 3.3.8 Cross-currency CLS-eligible trades ......................................................... 183 3.4 Retail payment systems .................................................................................... 183 3.4.1 Card-based systems ................................................................................ 183 3.4.2 Cheque clearing system........................................................................... 184 3.4.3 Electronic Clearing Service (ECS) ........................................................... 185 3.4.4 Electronic Funds Transfer system............................................................ 186 3.4.5 Ongoing and future projects..................................................................... 186 4. Systems for post-trade processing clearing and securities settlement....................... 187 4.1 General overview .............................................................................................. 187 4.2 Post-trade processing systems ......................................................................... 189 4.2.1 Government securities ............................................................................. 189 4.2.2 Collateralised Borrowing and Lending Obligation (CBLO) ....................... 189 4.2.3 Interest rate swaps................................................................................... 190 4.2.4 Exchange-traded securities and derivatives ............................................ 190 4.3 Central counterparties and clearing systems .................................................... 193 148 CPSS – Red Book – 2011 India 4.3.1 Government securities..............................................................................193 4.3.2 Collateralised Borrowing and Lending Obligations (CBLO) ......................194 4.3.3 Foreign exchange settlement....................................................................196 4.3.4 National Securities Clearing Corporation Ltd. (NSCCL) and Indian Clearing Corporation Limited (ICCL).......................................196 4.3.5 Bombay Stock Exchange..........................................................................200 4.4 Securities settlement systems............................................................................202 4.4.1 Government securities..............................................................................202 4.4.2 Securities traded on the NSE and the BSE ..............................................202 4.4.3 Derivatives ................................................................................................203 4.5 Use of securities infrastructure by the Central Bank ..........................................203 CPSS – Red Book – 2011 149 India List of abbreviations ATM automated teller machine BOISL Bank of India Shareholding Ltd BSE Bombay Stock Exchange CBLO collateralised borrowing and lending obligation CCIL Clearing Corporation of India Limited CCP central counterparty CDSL Central Depository Services Ltd CFMS Centralised Funds Management System CRR cash reserve ratio CSGL constituent subsidiary general ledger ECS Electronic Clearing Service EFT Electronic Funds Transfer FEDAI Foreign Exchange Dealers Association