Fellow bankers,

I am indeed glad to be present in your midst as we commence a workshop on Real Time Gross Settlement. The workshop gains significance as we move over to include more banks and the system attains criticality and holds potential as one of the most systemically important payment systems of the country.

Banks in India have been keenly participating in the developments in the area of Payment and Settlement Systems, as part of the reform process embarked upon by the Reserve Bank of India. The thrust of the Reserve Bank has been to provide safe and secure systems which take care of the needs of not only large value funds transfers but also provide facilities for retail payments. Apart from this, efficiency is also a key word, with impetus being given toward overall systemic efficiency. The two letters which have changed the way of banking business in the country are I T as an acronym for Information Technology. No other facilitating service has resulted in such large scale benefits as Information Technology. I T has become such an essential ingredient of one's way of life in today's world that it is difficult to imagine a world without I T. And no other sector has benefited to such a large extent as the financial sector, with the Banking sector in particular, from the inroads made by I T. It has been widely accepted that Technology holds the key towards operational efficiency of any organisation of today and business excellence would be a result of optimising the use of technology. Many new processes, products and services offered by banks and other financial intermediaries are all now centred on large scale technology implementation. The integration of technology with sound business processes requires some levels of Business Process Re-engineering and banks in India need to follow up on the beginnings made in this regard. A few examples in this regard could be seen in the form of newer delivery channels to customers - in the form of Automated Teller Machines (ATM), and the networking of ATMs in the form of Shared Payment Networks, Internet Banking and the implementation of Core Banking solutions by most banks. The importance of safe, sound, secure and efficient payment and settlement systems have been recognised by banks the world over. Recognising that such effective systems are the backbone of any economy, the Reserve Bank has been in the recent past laying great emphasis on reforms in the area of payment and settlement systems. Addressing the risks associated with payment and settlement systems is being ascribed high importance and it is in this context that the 'Core Principles for Systemically Important Payment Systems' of the Bank for International Settlements, Basle gain significance. The efforts of the Reserve Bank have been to ensure full compliance to these Core Principles and one of the moves aimed at reducing risks - especially settlement and systemic risks - has been the introduction of RTGS.

Prime among the concerns of the Reserve Bank are the factors relating to Risk Management and Risk Reduction, with specific reference to Systemic Risks (which are risks capable of having a negative impact on the entire group of participants in any payment and settlement system). It was with this objective that the Real Time Gross Settlement (RTGS) System was planned for introduction and has now become a reality. The system, in its present form would take care of all inter bank transactions and other features would be added on soon. Banks have all risen to the occasion in ushering in a system which uses the latest in technology and relies to a large extent on network based information flows. The system has stabilised well and more members are being included into the RTGS system.

Any new system would have a variety of changes to be addressed. RTGS is also a similar system, but with a host of additional challenges which the members have to address and overcome. The first and foremost among this is that it is a fully electronic funds transfer system. This implies that there would be no paper based components as part of this system. This would necessitate banks to provide comfort among their operative staff on the use of electronic processing systems, electronic records as back up data and a complete tracking mechanism built around technology. Many banks in the country have already introduced Internet Banking for their customers, which entails the processing to be done in an electronic and networked environment. The benefits of this are, however, quite significant for banks. Straight Through processing (STP) which results in quick processing, fewer errors and in lesser costs are the advantages of RTGS, if it could interlaced with facilities such as Online Banking and Internet Banking . Banks would have, however, to ensure that they take quick steps to make use of these benefits. Care would have to be taken to ensure that the mandatory security requirements in the form of PKI and digital signatures are also provided for all RTGS messages as also other related sub-system information process flows.

The next challenge of RTGS relates to the nature of the funds transfer. By its very nature, RTGS is a credit-push system, which implies that pre-funding is a vital ingredient of the entire chain. Banks and customers in India are used to the traditional mode of paper based funds movement where funding needs to be arranged only at the actual moment of presentation of the paper cheque. RTGS would require funds to be available at the time of initiation of the transaction, be it for the customer or for the member of the RTGS system. This would amount to a paradigm shift in the way of funding of accounts and this would be a dominant factor which would have an impact on the costs of the RTGS transaction both for the customer and for the member banks. It must be realised that credit transfers reduce liquidity and credit risks and therefore must be encouraged and the RTGS is a step in this direction for large value and inter-bank funds movements. Another attendant challenge relates to liquidity management under the RTGS scenario. By its very nature - of gross settlements without any netting - RTGS requires larger amounts of liquidity in the system for conclusion of all transactions. The RTGS system implemented by the RBI has many features such as Intra-day collateralized Liquidity Support by the RBI and potential grid lock resolution on account of liquidity mismatches, but, nevertheless, the task of liquidity management under an RTGS system throws a lot of challenges to the funds or treasury managers whose nature of tasks undergo substantial change in a post RTGS environment. The Reserve Bank has been sensitizing banks about these aspects and banks are also gearing themselves to meet the challenge, but to my mind, I feel that this aspect needs to be looked into from an implementation perspective so that well documented procedures are made by members so that no risks surface on this count and the system functions smoothly.

One of the crucial challenges created by RTGS would be the need for banks to ensure that the funds ultimately reach the actual beneficiary. While many banks have already begun addressing the last mile problem, customers would become more demanding and would request that the reach and coverage of RTGS be expanded to cover larger parts of the country. Banks need to be proactive in their approach and ensure that RTGS services are offered at more and more branches, without adding to inter-branch reconciliation problems which is an area of concern. With this is a requirement of the RTGS system, there is also an opportunity in the waiting. The facilities of RTGS could be extended to cover a large number of customers of banks spread across their many branches. In order to make this a reality, it would be necessary for banks to bring into the RTGS map, a large number of their branches, which are all inter-connected through a robust communication system and that suitable procedures are in place to take care of RTGS based funds movements. The operative staff at branches need to be provided training inputs on the benefits and advantages of RTGS based transaction processing. Above all, adequate customer education is also a vital ingredient if the benefits of RTGS were to percolate ultimately in the form of improved customer service through the provision of improved and better products and services by banks.
Yet another challenge which needs to be addressed by banks pertains to the possibilities of expanding newer horizons consequent upon RTGS. Banks which have implemented core banking solutions could leverage upon their centralised data base architecture to provide new products and services for their customers. Some of the traditional products such as Cash Management Products for corporate customers, and traditional money transfer systems amongst branches may lose their significance but other innovative offerings may have to be designed by banks and offered to their customers. These could be in the form of value added services which would not only provide better customer service but also add to the profitability of banks, in a period which is marked by wafer thin margins and high levels of competition.

To sum, I must mention that RTGS brings a plethora of attendant benefits, which far overshadow the challenges. With risk free transfer of funds being the requirement of the hour, and the growing importance of the role of safe and efficient payment and settlement systems for any economy, RTGS provides the much required relief. The seminar of today would, I am sure, provide you all with valuable inputs which could be used by all during their day-to-day operations. I would exhort upon each and every one of you present here to make best use of the opportunity and ensure that RTGS is used to the best possible extent and in the process ensure that this results in improved customer service and overall systemic efficiency.

I wish the seminar all success.

Thank you.

Presentations :

1. RTGS Presentation by : Mr Deepak Mohanty ,
Monetary Policy Department, RBI
2. RTGS Presentation by : Mr M P Kothari, RD. RBI
3. RTGS Presentation by : Dr. Jo Spencer
4. RTGS Presentation by : Dr. Jo Spencer
5. RTGS Presentation by : Mr R Gandhi, CGM-in-charge, RBI
6. RTGS Presentation by : M Sarat Chandra