Panel wants payment systems under RBI purview

MUMBAI: The Reserve Bank of India (RBI) constituted committee on payment systems has recommended that the central bank, as the regulator of payment and settlement systems, should be empowered to regulate non-banking entities that provide payment related services and systems.
The panel, headed by RH Patil, chairman of Clearing Corporation of India, wants the proposed legislation to also cover other types of payment transactions and new products such as real-time gross settlements (RTGS) and e-cash.
The legislation, which will govern payment and settlement systems, should give RBI the authority to govern the proposed Act, said the committee. It wants a separate board of payment systems to be constituted with the central bank. It also wants a department of payment and settlement systems (DPSS), which would frame the policies.
The panel wants various departments within the central bank, performing different functions related to payment and settlement, to operate at arms length and with “Chinese walls� separating them. It has recommended a legal basis for payment, clearing, settlement (gross and netting) and finality of settlement arrived at and accounted for.
The panel has sought statutory powers for RBI in view of the combined function performed by it as regulator and service provider of payment and settlement systems. The committee has suggested demarcating the regulatory and supervisory function of RBI.
The panel said the proposed legislation should also ensure that netting (net settlement) acquires a legal backing. “While gross settlements, which imply one-to-one settlement, are inherently attributable to the transactions between the parties concerned, thereby binding both the parties, netting results in the creation of fresh payment obligations among the participants of any such system,� it said. For netting to acquire legal backing, a requisite base has to be provided for in the proposed legislation.
The terms of reference of the panel were to examine the adequacy of legal basis for payment systems, suggest appropriate legislative changes for regulation of payment systems, suggest an administrative set-up within RBI for regulation and supervision of payment systems.