Vigilance Awareness Week from 3rd November to 7th November, 2008

Consultancy Project

Consultancy: - institutional, in area of expertise preferably its trust area. Comprises scientific, technical, engg., or other proff. Advice/ assistance based on the available knowledge base / expertise of the Lab., and envisaging only minimum use of lab. facilities for essential experimentation and computation to meet the objectives of the consultancy assignments. It covers

(1) Scientific, technical, engg. or other proff. Advice.

(2) Literature survey and preparation of feasibility studies, technology forecasting/ evaluation reports etc.

(3) Interpretation of test result and data provided

(4) Risk and hazard/ environmental impact analysis, pollution abatement/ control measures etc.

(5) Assistance in erection, commissioning, operation, troubleshooting, productivity improvements, energy conservation, waste utilization etc.

(6) Customized HRD program

(7) Technical advice (one time) such as troubleshooting, problem resolving, quality control etc.

Financial aspects:-

(1) Direct expenses:-

(i) cost of

(a) Deployed CSIR staff mandays as per CSIR prescribes rate and

(b) Temporary staff deployed at actual cost + 40 % OH

(ii) Cost of consumable raw materials/consumable/ physical inputs/services/utilities with 25% OH (towards expenses for purchase, storage, handling etc.

(iii) equipment usage cost/ cost of equipment procured specially for the projects :-

(a) Existing one to be charged on pro-rata based on as annual usage charges upto 20% of cost of equipment and installation. Where cost cannot be ascertained the charges are to be decided by CA.

(b) New equipment is to be charge with an additional procurement and handling charges of 5% of the cost of the equipment.

(iv) TA/DA:-

(a) at CSIR rates with exception to reimburse total expenditure with prior approval of Director

(b) Air travel to non-entitle G.S on functional basis & if it is expedient to do so in public interest.

(v) Contingencies including external payment for facilities/services

(vi) Others (if any)

(2) Intellectual fees: - charges for CSIR investment over a period of time, in building up and sustaining the extent level of expertise, knowledgebase and facilities. Charges should be commensurate with quantum and quality of CSIR’s resource input and also the likely benefits to be derived by the clients on implementation of the project results. There is no upper ceiling but it should in no case be less than the estimated manpower charges, except in case of consultancy offered against open tender, where the IF could be decide by the CA keeping in view the potential competition. For cottage and small scale units (as per govt. definition) the minimum IF could be 30-50% of manpower charges. Not to be charge in case of sister lab. Project.

(3) service tax on (1) & (2)

Project charge = (1) + (2)

Total project cost = (1) + (2) + (3)

Term of payment: - the laboratory shall obtain an advance of not less than 50% of the project cost on or before signing the agreement and the balance in installments linked to suitable milestones/deliverables as defines in the project/ agreement. However, in case of projects from govt. dept. /agencies, PSE, investigational job by Govt., court, statuary authorities etc. and project secured against open tenders, the term of payment may be as per the mutual agreement.

General condition:-

(1) Contractual obligation shall be that of CSIR.

(2) Staff involvement shall be approved by director/MC

(3) As far as possible ‘the team of consultant’ selected for consultancy work should have confidence of the client.

(4) Fair distribution of consultancy work among eligible staff

(5) Consultancy assignment costing less than 50000.00 should not be encouraged except in deserving case with discretion of director.

(6) The total number of days devoted by staff member to consultancy work should not exceed 50 mandays in a financial year.

Contract R&D

Contract R&D:- All R&D activities undertaken and executed under specific contractual arrangements agreed upon for the purpose. The projects should fall within the purview of approved research areas of the laboratory. It includes:-

(1) Sponsored R&D:-

(a) Fully externally funded having specified R&D objective. (Exception to full funding of SSP could be made with the approval of CA for specific nationally relevant projects related to defence, health, social welfare and the like)

(b) Well defined expected project output/result

© culminating into generation of IP/ Knowledgebase.

(d) Can also include process design and engg. , process modeling & simulation, application of computational methods , developments of software etc.

(e) Can be multi-clients also

(2) Collaborative/ cooperative R&D:-

(a) Partially funded by the client

(b) Supplemented by provision of inputs such as expert manpower, engg. , Production/ fabrication of product in bulk for testing/ trials, creation of infrastructural inputs etc.

© could be in advanced areas of research, for upscalling /proving of laboratory level know-how, technology development or generation of IP etc.

(d) Output/ result definition depends on nature of the project.

(e) Can be multi-clients also

(3) Grant-in-aid R&D:-

(a) projects involving a grant by way of financial inputs , either full or in parts , assistance in kind e.g. equipment, training etc.

(b) To supplement laboratory efforts in ongoing or new R&D projects or for creating new capabilities/ facilities.

© For generating database, sophisticated equipments for testing and infrastructural facilities.

Financial aspects:-

(1) Direct expenses:-

(i) cost of

(a) Deployed CSIR staff mandays as per CSIR prescribes rate and

(b) Temporary staff deployed at actual cost + 40 % OH

(ii) Cost of consumable raw materials/consumable (chemicals, glasswares, stationary, raw materials, component & other store items) with 25% OH (towards expenses for purchase, storage, handling etc.

(iii) Cost of physical inputs/services/utilities (water, steam, gas, electricity, workshop, drawing office etc.) with 25% OH (towards installation, maintenance etc.)

(iv) equipment usage cost/ cost of equipment procured specially for the projects :-

(a) Existing one to be charged on pro-rata based on as annual usage charges upto 20% of cost of equipment and installation. Where cost cannot be ascertained the charges are to be decided by CA.

(b) New equipment is to be charge with an additional procurement and handling charges of 5% of the cost of the equipment.

(v) TA/DA:-

(a) at CSIR rates with exception to reimburse total expenditure with prior approval of Director

(b) Air travel to non-entitle G.S on functional basis & if it is expedient to do so in public interest.

(vi) Contingencies including external payment for facilities/services

(vii) Others (if any)

(2) Intellectual fees: - charges for CSIR investment over a period of time, in building up and sustaining the extent level of expertise, knowledgebase and facilities. Charges should be commensurate with quantum and quality of CSIR’s resource input and also the likely benefits to be derived by the clients on implementation of the project results. Should in no case be less than 40% of total expenses excluding the cost of equipments and other capital investments at the cost of client. For cottage and small scale units (as per govt. definition) the minimum IF could be waived with the approval of CA. Not to be charge in case of Govt. funded & sister lab. project.

(3) service tax on (1) & (2)

Project charge = (1) + (2)

Total project cost = (1) + (2) + (3) (exception to full funding of SSP could be made with the approval of CA for specific nationally relevant projects related to defence, health, social welfare and the like)

Term of payment: - the laboratory shall obtain an advance of not less than 25% of the project cost on or before signing the agreement and the balance in installments linked to suitable milestones/deliverables as defines in the project/ agreement. However, in case of projects from govt. dept. /agencies, PSE, and project secured against open tenders, the term of payment may be as per the mutual agreement.

10 ways to survive office politics

1.Live at peace with others
The easiest way to avoid problems with politics is to get along with people. I'm not saying you need to hug everyone and sing songs, and I'm not saying you have to be a pushover for everyone. You can be pleasant and professional, while at the same time being assertive when necessary. If you have a concern, focus on the issue, not on the person. If you have to refuse a request, explain why and try to come up with alternative solutions.
Living at peace with others also means being careful about choosing sides during office power struggles. Aligning yourself with one faction or the other will prevent you from working effectively with people from the "other" side, thereby hampering your productivity and thus your performance. It's even worse if "your" faction loses out. Instead, try to focus on your tasks, dealing with people in either faction on the basis of the tasks alone, and avoid talk on the political issue that separates the groups.

2.Don't talk out of school
Three can keep a secret if two of them are dead.
—Benjamin Franklin
Does your organization have issues? Have people told you things in confidence? Then keep those matters to yourself. Talking to outsiders about issues within your organization makes all of you look bad to that outsider. Furthermore, your boss or your boss's boss will not appreciate that behavior. People will find out that you spoke about what they told you, and they'll lose confidence in you and respect for you.

3.Be helpful
We all have responsibilities and objectives, and those things should receive priority. Nonetheless, if it doesn't take too much time, being helpful to others can reap benefits for you. Does someone need a ride in the direction you live? Did your co-worker leave headlights on in the parking lot? Is someone having trouble building an Excel macro? If you can help that person, especially if you can do so without taking too much of your time, you benefit yourself as well as the other person. By doing these things, you're building political capital and loyalty. In doing so, you reduce the chances that you will be the victim of political intrigue.

4.Stay away from gossip
I never repeat gossip, so listen carefully.
—Old joke
Nothing destroys the dynamics of an office more than gossip. Stay away from it, because nothing good comes from it. Just be sure you avoid the "holier than thou" attitude of lecturing your co-workers on the evils of gossip. You'll make them lose face, and they'll resent you. Instead, try subtly changing the subject. For example, suppose the group is talking about Jane's problems with her child, and of course Jane is absent from the group. Do some free association and try to come up with some topic that's related to Jane or her child, but won't involve gossip. Then, make a comment about that topic.
For instance, suppose you know that Jane's child is involved in a sports league. Mention this fact, thereby linking the child and the league. Then, shift the conversation so that you're now talking about the league rather than Jane's child. You could ask when schedules will be published, or if they need parent volunteers. If you do it right, no one will even notice that you've moved them away from the gossip.

5.Stay out of those talk-down-the-boss sessions
Suppose your co-workers start complaining about the boss. If you join in, it makes you look disloyal to the boss. If you don't, it looks awkward in the group. What can you do? As with the situation of gossip, try changing the subject by linking the boss to another topic, then talking about that topic instead. Or you could simply respond to your co-workers with a smile and a tongue-in-cheek, "Come on, aren't we exaggerating? [name of boss] really isn't THAT bad." Be careful, though, because it could be taken as an admission by you that the boss is bad.

6.Be a straight arrow
The best way to keep out of trouble politically is to be seen as someone who doesn't play office politics -- in other words, a straight arrow. Do what you say you're going to do, alert people to problems, and admit your mistakes. Others will respect you, even if they don't always agree with you. More important, you have a lower chance of being a victim of politics.

7.Address the "politics" issue openly when appropriate
Many times, when I do organizational assessments, I sense anxiety on the part of client staff. To address this anxiety, I tell people I interview that I'm not there to get people fired. I'm there to help the organization function better. It might not completely allay their fears and suspicions, but at least I've brought up the issue and addressed it.
Think about doing the same thing if you believe politics is an underlying theme at your company. Tell people you're not interested in scoring political points but only in getting the job done. It might not work, but unless you bring the matter up, there's no chance at all that they will believe you. So if a co-worker is unavailable, and you have to act on that person's behalf, consider saying to that person, "I had to act because of your absence. I wasn't trying to go behind your back and I wasn't trying to show you up."

8.Document things
Nothing saves a job or career more than having a written record. If you believe a matter will come back to haunt you, make sure you keep a record of the matter, either via e-mail or document. Documentation is also an effective way to highlight of your own accomplishments, which can help you when your performance evaluation is conducted.

9.Set incentives to foster teamwork
If you're a manger or senior executive, take a close look at your incentives. Are you unwittingly setting up your staff to work against each other? Do your metrics address only individual departments, or do they also address how departments could benefit the larger organization?
For example, suppose the hardware department of Sears reduced all its prices by half. If you measured only profitability of the department, you would conclude that it is performing horribly. However, that measurement would neglect to account for increased volume in all other departments because of the hardware department.
If you reward employees in a department based only on how well that department does, you may inadvertently cause destructive competition among departments. Each one will be competing against every other one, and all the departments could end up in a worse position. To minimize this possibility, give employees incentives based not only on department results but on organization results as well. That way, employees from different departments have more motivation to work together and less motivation to engage in destructive politics.

10.Set an example for your staff
People in an organization look to leadership to see how to act. Do you want your staff to refrain from negative politics? Do you want to see collaboration and teamwork instead of petty rivalries, jealousy, and back-stabbing? Act the way you want your staff to act, and they will follow you.

Courtesy :- Calvin Sun (TechRepublic)

Calvin Sun works with organizations in the areas of customer service, communications, and leadership. His Web site is http://www.calvinsun.com and his e-mail address is csun@calvinsun.com.

Performance Audit on Procurement of Stores and Inventory Control in Department of Space by CAG

Planning for procurement

• Out of a total procurement budget of Rs.8636.18 crore of Departmentof Space (DOS) during 2001-02 to 2006-07, the unutilised budget increased consistently from Rs.83.28 crore in 2002-03 to Rs.438.28 crore in 2006-07. The extent of savings was as high as 30 to 38 percent in some years in certain Centres, indicating serious deficiencies in procurement planning and management.[Para 2.6.1& 2.6.2]
  
• Procurement planning of DOS was deficient as it placed orders on piecemeal indent basis. Assessment of requirement and cost estimations by indentors were inaccurate, leading to large number of indents not resulting in purchase orders and wide variations between indent value and order value. Non-consolidation of similar purchases also resulted in uneconomical purchases and extra expenditure of Rs.93.95 lakh. [Para 2.7.2.1, 2.7.2.2 & 2.7.2.3]
  

Competitiveness in the tendering process

• Procurement practices adopted by DOS did not ensure adequate transparency and competition as 67 per cent of procurements amounting to Rs.996 crore were made on proprietary/ single tender basis. There were instances of proprietary purchases being made for routine items and also in cases where more than one source of supply was available.[Para 2.7.3.1 ]

Fairness and objectivity in the selection process and award of contract

• In violation of codal provisions and CVC guidelines, negotiations were held with other than lowest bidders resulting in placement of irregular purchase orders in eight cases, amounting to Rs.44.58 crore.Non-award of contract to the lowest bidders resulted in extra expenditure of Rs.3.42 crore in two cases.[Para 2.7.4.1]
  
• ISAC awarded contract to a supplier who was not found technically suitable and thus, extended undue favour by awarding contract worth Rs.4.27 crore. In other two procurements, ISAC extended undue favour to the suppliers in award of contract worth Rs.9.99 crore by changing the selection criteria after invitation of bids. Changes in terms of purchase order/contracts in other three cases benefited suppliers to the tune of Rs.1.87 crore. [Para 2.7.4.2, 2.7.4.3 & 2.7.4.4]
  
• Delay and inefficiencies in processing and finalisation of tenders resulted in avoidable additional expenditure of Rs.2.70 crore in two cases due to procurement of stores at higher rates, after expiry of initial validity of offer.[Para 2.7.4.4]
  

Efficiency in Post Contract Management

• There were significant delays in inspection of the stores received.Non-replacement of rejected items at ISAC resulted in unfruitful expenditure of Rs.8.73 crore in five cases. Moreover, non-installation/ delayed installation of equipment in six cases for period ranging from 5 to 60 months at LPSC and ISAC resulted in blocking of funds and idling of equipment worth Rs.12.43 crore.[Para 2.7.5.1 & 2.7.5.2]
  
• Advances in 1177 cases, worth Rs.437.73 crore, paid to foreign and indigenous suppliers were pending for 1 to 15 years and more. No interest was charged on these long pending advances by DOS.[Para 2.7.5.3]
  
• There was lack of monitoring of adjustment of advances and renewal of Bank Guarantees. Non renewal of 147 cases of Bank Guarantees amounting to Rs.83.65 crore may expose the organisation to financial risks in cases where suppliers default in making supplies/executing work orders. [Para 2.7.5.4]
  

Inventory Control

• ISAC did not revise its procurement policy for Bonded Stores since the last decade which resulted in blocking of funds worth Rs.600 crore.[ Para 2.8.1]
  
• There was overstocking in 9055 categories of electronic, electrical, electro-mechanical components (Bonded Stores) worth Rs.75.02 crore, resulting in infructuous expenditure due to obsolescence of items. No physical verification of Bonded Stores was conducted in ISAC after 1995-96.[Para 2.8.2, 2.8.4]

Summary of Recommendations

• To reduce delays, DOS should prescribe appropriate time frame for each stage of procurement viz., indenting, sanction, issue of purchase order, and supply. Such a time frame should be prescribed after taking into account the type of material to be procured and the sources of supply.
• DOS should streamline the system of assessment of requirement by the indentors by maintaining a centralised database of various items, their specifications, status of technology and availability in market, prevailing costs, sources of supplies etc, to ensure accurate projection of requirements and realistic estimation of cost.
  
• DOS should prepare annual procurement plans by consolidating requirements of all the end users in advance to avoid delays, repetitive procurements, maximise value for money by availing quantity discount and enhancing competition. DOS should strictly follow codal provisions in selection and award of contracts by placing orders on the lowest qualified bidder.
  
• To ensure transparency in the procurement process, DOS may consider going in for limited tendering for generic products where more than one supplier is available in the market.
  
• DOS may build up a database of vendors to bring in more competition in the procurement process and reduce proprietary/single tender procurements.
  
• DOS should ensure compliance to the CVC guidelines during evaluation of tenders.
  
• DOS should strictly follow codal provisions in selection and award of contracts by placing orders on the lowest qualified bidder.
  
• DOS should avoid inordinate delays in processing and finalisation of tenders to ensure timely procurement and avoid extra expenditure due to subsequent escalation in price.
  
• DOS should avoid inordinate delays in the placement of purchase orders and ensure strict compliance to the codal provisions for relaxation of terms and conditions of contracts.
  
• DOS should streamline its system of inspection of materials as delayed/non inspection deprived DOS of the opportunity of preferring damage/warranty claims and seeking replacement of rejected items.
  
• DOS should avoid delays in installation/commissioning of equipment by ensuring timely availability of site, infrastructure, etc.
  
• DOS should ensure that advance payments to suppliers are made only in exceptional circumstances subject to payment of interest at appropriate rates.
  
• DOS should make efforts to recover long outstanding advances from the defaulting suppliers.
  
• DOS should closely monitor adjustment of advances and renewal of Bank Guarantees to minimise its financial risk in cases of default on part of the suppliers in meeting their obligations under the contract.
  
• DOS may consider revision of its purchase procedures so as to make it consistent with the provisions of General Financial Rules, 2005.
  
• DOS may review its policy to stock Bonded Stores items on actual need basis and past consumption pattern. The procurement policy drafted in 1995-96 needs be reviewed in the present scenario.
  
• DOS should ensure that physical verification of all types of stores is conducted periodically to reduce inventory cost and make inventory management more efficient.
  
• The items declared as obsolete/ surplus/ un-serviceable should be immediately disposed off to avoid their intrinsic value from diminishing and thus incurring avoidable carrying costs.

Other comments

• Rule 161 of GFR, 2005 emphasises the importance of fixing time frame at different stages of procurement. Such a time frame will also make the concerned purchase officials more alert.
• Planning for procurement involves realistic and timely assessment of requirements, making proper cost estimates, conducting market surveys to identify the possible sources of supply, clubbing similar requirements to avoid repetitive tendering and obtain quantity discounts, selecting appropriate mode of procurement and formulating most suitable strategy to ensure timely availability of goods and services, as per the requirements of end users.
• As the estimated rate is a vital element in establishing the reasonableness of prices, it is important that the same is worked out in a realistic and objective manner on the basis of prevailing market rates, last purchase prices, economic indices for the raw material/ labour, other input costs etc., wherever applicable and assessment done based on intrinsic value.
• Competition is the key element of the procurement policy framework and promotes value for money. Effective competition requires non-discrimination amongst suppliers in procurement and the use of competitive procurement process.
• As per Rule 154 GFR “procurement from a single source may be resorted to only in emergency cases and in cases of availability of the sole supplier for the required goods, with the approval of the competent authority”.
• Good procurement practices offer all interested suppliers a level playing field to compete and thereby, directly expand the purchaser’s options and opportunities. A good procurement process should not only be fair but should be seen to be fair.
• Efficient post contract management includes immediate inspection of stores, their installation and commissioning, taking proactive action for replacement of rejected stores, monitoring of financial transactions to safeguard the interest of the organisation, by ensuring that the securities furnished by the suppliers are kept safely and updated periodically.
• The formulation of appropriate policy and procedures relating to inventory control and management assumes greater significance, especially in the context of the organisations where the level of procurement is very high. An efficient inventory management not only facilitates smooth operations of an organisation, but also optimises the level of inventory, thus, impacting expenditure on stores. This also involves physical verification of inventory on regular intervals which facilitates identification of surplus/obsolete/ unserviceable items and thus, efficient disposal.

Source here

Misuse of LTC to NER by cash back scheme of travel agents

All Indian Central Govt Group A and B employee with family can travel to northeast region by Air on LTC. Many travel agency using this opportunity to make benefit by enrolling the central government employees to various travel package.

Travel agency can arrange you free lodging, traveling and food on same LTC. Many travel agents are also offering cash back package in hidden form.

Central Government employee should avoid this money cash back scheme, as this can bring you trouble in future.Government intention is to make people travel in north east region, but if you use this opportunity for making money by cash back scheme, it will be treated as forgery.

Here is a sample from a travel website on the cash back offer

"I am group A employee. My question is if for example i plan to go to gangtok and darjeeling, is there any package tour that is available that include both travel and accomodation but the money can be claimed under LTC. I know i can claim the air fare money using LTC. I do not want to pay for accomodation and was wondering if some package deal (under LTC) will cover the accomodation charges.

Answered by: RVS Cruise | On: 28 Sep 2008	Answer Rank: 8
Dear Sir I would hereby like that we provide the best deal in LTC's where u get almost 20,000 Cash Back Per person plz call on 09910779633/09210341855 Thanks Richy R" Link here

RBI’s Appeal to Public

The United Forum of Reserve Bank Officers and Employees has given a call to its members to apply for mass casual leave on Tuesday, October 21, 2008. The Reserve Bank of India has stated that such action on their part amounts to cessation of work and concerted refusal to work. Apart from such action being uncalled for, in the absence of due notice, it amounts to an illegal strike.

The Reserve Bank has also stated that the strike is likely to cause some disruption of normal work of the Reserve Bank on that day, including the payment and settlement system. While it will endeavor to maintain normal services, the Reserve Bank has advised members of public to complete their transactions, if any, with the Reserve Bank on October 20, 2008 itself.

Alpana Killawala
Chief General Manager

Press Release: 2008-2009/521

Letter of Credit - Essential Information

Letter of credit (L/c) is the most preferred payment option for exporters. Compared to other payment options, L/c has many safeguards for sellers and at the same time assurance for buyers. It is usually issued by larger banks and contain a promise to pay a seller (beneficiary) upon receipt of goods by a buyer if certain conditions outlined in the letter have been met.

What is Letter of Credit ?

Letter of Credit or (L/c) is a legal document to arrange payment between a buyer(importer) and seller (exporter). The bank, as intermediary, ensures security for both parties, giving the exporter confidence that the importer is capable of paying for the goods while assuring the importer that payment will be made to the exporter only after the terms outlined in the letter of credit have been met.

Analysis of typical L/c Transaction

• Step 1 After successful negotiation on price, specification, quality etc, Buyer selects a seller and places order for specified goods

• Step 2 Seller accepts the order

• Step 3 Buyer and Seller agrees on terms and conditions of the sale. Buyer instructs its bank to open a L/c incorporating previously agreed terms of sale

• Step 4 The buyer's bank prepares a Letter of Credit (L/c), including all instructions to the seller's bank concerning the shipment and sends the L/c to the seller's bank, requesting confirmation. The seller may request confirmation from a confirming bank for added security.

• Note: There are often delays at above two steps for various reasons like buyer does not have sufficient funds or seller requests change in L/c terms. Amendments are issued to incorporate changes in L/c terms.

• Step 5 The Seller's bank prepares a letter of confirmation to forward to the seller along with the L/c. The seller reviews carefully all conditions in the L/c specially shipment schedule in consultation with his freight forwarder.

• Step 6 The seller arranges the goods and hand over to freight forwarder for delivery at appropriate port or airport.

• Step 7 Once goods are loaded/shipped, the forwarder completes necessary documentation and hand them over to the seller. The seller then presents the documents to his bank, informing full compliance with terms and conditions of L/c.

• Step 8 The seller's bank reviews the documents. If they are in order, the documents are airmailed to the buyer's bank for review and passing necessary documents to buyer. The buyer gets the documents needed to claim the goods.

• Step 9 The buyer's bank returns accepted draft and informs buyer. Buyer pays bank.

• Step 10 The seller's bank gets payment and pays seller.

The letter of Credit Ensures that:

Payment to the seller will only be made after the terms of the L/c have been met. The documents, which have been reviewed by the bank's experienced staff, are in order. The seller is assured of the buyer's ability to pay and, as a result, a better price and more advantageous

Closer look at some key terminology

Irrevocable Letter of Credit

An irrevocable letter of credit cannot be amended or cancelled without the consent of the issuing bank, the confirming bank (if any), and the beneficiary. The payment is guaranteed by the bank if the credit terms and conditions are fully met by the beneficiary. The words "irrevocable documentary credit" or "irrevocable credit" may be indicated in the L/c.

Irrevocable and Without Recourse Letter of Credit

The irrevocable letter of credit received from an advising bank may be indicated as "irrevocable and without recourse documentary credit". The words "without recourse" mean that the advising bank will not be able to recover the money paid to the beneficiary in case the issuing bank does not pay the advising bank.

Revocable Letter of Credit

A revocable letter of credit can be amended or cancelled by the issuing bank at any time without the consent of the beneficiary, often at the request and on the instructions of the applicant (buyer). There is no security of payment in a revocable letter of credit. The words "this credit is subject to cancellation without notice", "revocable documentary credit" or "revocable credit" usually are indicated in the L/c. Obviously, this type of L/c is highly risky from the beneficiary point of view.

Confirmed Irrevocable Letter of Credit

An irrevocable letter of credit opened by an issuing bank whose authenticity has been confirmed by an advising bank (usually a prime world bank) and where the advising bank has added its confirmation to the credit is known as confirmed irrevocable letter of credit. The words "we confirm the credit and hereby undertake ..." or "we add our confirmation to this credit and hereby undertake ..." normally are included in the L/c. An exporter whose method of payment is a confirmed irrevocable L/c is assured of payment even if the importer or the issuing bank defaults. The confirmed irrevocable L/c is particularly important from buyers in a country which is economically or politically unstable. In a confirmed letter of credit, the exporter or the importer pays an extra charge called the confirmation fee, which may vary from bank to bank within a country. The fee usually is added to the exporter's account. The exporter may indicate in the sales contract that the confirmation fee and other charges outside the seller's country are on the buyer's account.

Unconfirmed Irrevocable Letter of Credit

An irrevocable letter of credit opened by an issuing bank but not confirmed by an advising bank (usually a prime world bank) is known as an unconfirmed irrevocable letter of credit. The promise to pay comes from the issuing bank only, unlike in a confirmed irrevocable L/c where both the issuing bank and the advising bank promise to pay the beneficiary.

Restricted Negotiable Letter of Credit

In a restricted negotiable letter of credit, the authorization from the issuing bank to pay the beneficiary is restricted to a specific nominated bank.

Freely Negotiable Letter of Credit

In a freely negotiable letter of credit, the authorization from the issuing bank to pay the beneficiary is not restricted to a specific bank, any bank can be a nominated bank as long as the bank is willing to pay, to accept draft(s), to incur a deferred payment undertaking, or to negotiate the L/c. The words "this credit is not restricted to any bank for negotiation" or "this credit may be negotiated at any bank", or similar words, may be indicated on the L/c.

Revolving Letter of Credit

When a letter of credit is specifically designated "revolving letter of credit", the amount involved when utilized is reinstated or replenished. In other words, once supply has been made and beneficiary receives payment for the shipment, the L/c amount becomes available again without issuing another L/c and usually under the same terms and conditions. The revolving L/c is used for regular shipment of a large quantity over a period of time (several months).

Latest Negotiation Date

The latest negotiation date is the last day of the period of time allowed by the letter of credit for the presentation of documents to the bank. The latest negotiation date may not necessarily be the L/c expiry date. For example, the latest negotiation date can be July 31, 2001 or 15 days after the date of shipment, whichever comes first. In case the L/c does not stipulate the latest negotiation date, it is within 21 days after the date of issuance of the transport documents, but on or before the L/c expiry date.

Expiry Date and Place

The expiry date and place is the last day of validity of the credit and the place allowed by the letter of credit for the presentation of documents for payment, acceptance or negotiation. In case the validity of an L/c is stated in a period of time, for example "this credit is valid for three months" or "this credit is available for two months" or "this credit is good for one month", but does not specify the date from which the time is to run, its validity starts from the issuance date of L/c by the issuing bank. The bank normally discourages stating the L/c validity in a period of time. In case the expiry date and/or the latest negotiation date falls on a day on which the bank is closed for reasons not including the acts of God, strikes, riots, civil commotions, lockouts, insurrections, wars or any other causes beyond the bank's control, the expiry date and/or the latest negotiation date is extended to the succeeding first day on which the bank is opened. Such extension, however, does not extend the latest date of shipment.

Latest Shipment

The latest shipment---latest date of shipment or last date for shipment---is the last day of the period of time allowed by the letter of credit for shipment, dispatch or taking in charge.

Transferable Letters of Credit

A letter of credit can be transferable or non-transferable. The L/c usually indicates "transferable" in the case of a transferable credit. In the absence of such indication, the L/c is deemed to be non-transferable. In a transferable letter of credit, the first beneficiary (the exporter) may request the paying, accepting or negotiating bank to make the credit available in whole or in part to one or more second beneficiary or beneficiaries. The second beneficiary can be another exporter, trader or manufacturer. The L/c is expressly designated "transferable" by the issuing bank on instructions of the applicant. The letter of credit that was transferred or made available to the second beneficiary is known as the transferred credit. The bank that makes the transfer is known as the transferring bank.

Non-transferable Letter of Credit

In a non-transferable letter of credit, the beneficiary cannot transfer the credit to other beneficiary. The L/c usually indicates "non-transferable" or "not transferable. " Even if such indication in not there, the L/c is deemed to be non-transferable.

Management of Administrative Cadre and its interface with the Scientific Cadres in CSIR

CSIR had invited views from the Labs on "streamlining of Administrative Cadre in CSIR" because of following reasons

1. On many occasions the administrative cadre appears to be constrained to play a role of facilitator to R&D work being carried out in CSIR.
2. These cadres are perceived to be bogged down by their own inter-cadre problems among Administrative, Finance, Stores & Purchase and Stenographic cadres and perceived bottleneck of career progression in some of the cadres.
3. The spate of merger and demerger among the different cadres which has created an inconsistency with regard to seniority in different cadres which has not been settled satisfactorily.
4. The adequacy of administrative staff in different labs across the CSIR system and the basis of sanctioned staff strength across the administrative cadres in the CSIR is unexplained.
5. The system of transfer for Common Cadre Officers often results in disruption of smooth functioning in the labs and disturbance in personal and family life of these officers and
6. The system of assessment followed in CSIR with the component of interview for promotion has often resulted in complaints and court cases.

Based on the above reasons following queries had been sent to the Lab for reply:-

1. Number of administrative staff in different categories
   
2. Estimate of the labs for the requirement of staff
3. Status of assessment/promotion of different categories of staff and views of the lab on the system of assessment to be followed for the administrative cadres
4. Views of the lab on the merger and extent of merger of administrative cadres and isolated cadres
5. Transfer policy of Common cadre officers
6. How much freedom do the labs wants in appointment and retention of adminstrative staff and at what level
7. What kind of induction training and subsequent training do the labs suggest for staff of administrative cadre

Kindly comment

Provisions Governing Employment Under The Union And The States :

The Government servant holds office during the pleasure of the President but security of tenure is specifically assured to him. Articles 309, 310 and3 11 of the Constitution a& the provisions which apply to the cases of employees serving the Union and various States.

Article 309 empowers Legislature to enact laws subject to the Constitution for regulating recruitment and conditions of service of' persons appointed in connection with the affairs of the Union or of any State and also empowers the President or the Governor or such person as may be directed by him to make rules subject to the provisions of the Constitution for regulating recruitment and conditions of service of persons so appointed.
The provision of Article 310 (1) is that except as expressly provided by the Constitution every person who is a member of a Defence Service or of a Civil Service of the Union or of an All India Service holds his post under the Union during the pleasure of the President and every person who is a member of a Civil Service of a State, holds his post during the pleasure of the Governor of the State. To safeguard the service of a member of a Civil Service of the Union or of an All India Service or of a Civil Service of a State, Article 311(2) provides that no such person shall be dismissed or removed or reduced in rank except after an enquiry in which he has been informed of the charges against him and given a reasonable opportunity of being heard in respect of these charges, provided that where it is proposed after such enquiry to impose upon him any penalty, such penalty may be imposed on the basis of the evidence and it shall not be necessary to give such person any opportunity of making representation on the penalty proposed.
A subsequent amendment of Article 31 l(2) has restricted the protection earlier provided to a Government servant and purports to widen the Doctrine of Pleasure. The curtailment of the safeguard of enquiry is couched in the following language :
Provided further that this clause shall not apply-
( a ) Where a person is dismissed or removed or reduced in rank on the ground of conduct which has led to his conviction on a criminal charge: or
( b ) Where the authority empowered to dismiss or remove a person or to reduce him in rank is satisfied that for some reason, to be recorded by that authority in writing, it is not reasonably practicable to hold such inquiry: or
( c ) Where the President or the Governor, as the case may be, is satisfied that in the interest of the security of the State it is not expedient to hold such inquiry.
Clause (3) of Article 311 provides that if, in respect of persons as aforesaid, a question arises whether it is reasonably practicable to hold such inquiry as referred to in Clause (2), the decision there on of the authority empowered to dismiss or remove such person or to reduce him in rank shall be final.

Payment and Settlement System in India

,

(Special Address delivered by Shri V Leeladhar, Deputy Governor, Reserve Bank of India at the Conclave on Indian Banking – Vision 2010, organised by the Indian Banks’ Association on August 1, 2008 in Mumbai)

Dear Friends,

It is my pleasure to be here with you this afternoon at this important conclave, which seeks to articulate the vision of Indian banking in 2010. I am thankful to the organisers for affording me this opportunity to be here today and share some of my thoughts with this august audience. The Indian banking system has come a long way, particularly during the last couple of decades and continues to evolve in a myriad of ways. While, no doubt, the future contours of the Indian banking would be shaped and driven by a variety of factors, the developments in the payment and settlement systems, to my mind, would be of particular significance. This is so since the payment and settlement systems are part of the basic infrastructure needed for the proper functioning of market-oriented economies. They are indispensable for the efficient flow of payments for goods, services and financial assets and their smooth functioning is crucial for the effective implementation of the central bank’s monetary policy and for maintaining the financial and monetary stability in the economy. The RBI has recognised the payment and settlement systems to be critically important for the broadening and deepening of the financial markets, as also for maintaining confidence in the financial system by enhancing the safety, soundness and efficiency of the market infrastructure.

I have, therefore, chosen to talk about the payment system in India, which is an important element of the financial sector infrastructure. Today, I would like to briefly touch upon the evolution and objectives of the Indian payment system – as a public good, various milestones crossed by us in the past few decades, the major initiatives that the RBI has taken to upgrade and modernise the payment system in India to benchmark it with the best in the world, and the various technological developments that can be leveraged to further deepen the penetration of the payment system services in the country to promote greater financial inclusion.

Evolution of Payment System in India

The history of the payment system can be said to be virtually co-terminus with the evolution of money. The earliest form of payment system could perhaps be traced back to the pre-historic days of barter trade when the settlement of consideration took place through exchange of conch shells, goods, cattle and later commodities. Such a system, in the absence of money as a medium of exchange, was obviously very cumbersome due to highly improbable ‘coincidence of wants’ of the two parties to a barter transaction. Subsequently, more formalised payment instruments, such as coins, developed. The earliest payment instruments known to have been used in India were coins, which were either punch-marked or cast in silver and copper; even leather is known to have been used for making coins. Thus, with the advent of institutionalised forms of money, initially in the form of coins and later as paper money, the barter trade withered away and the usage of currency became the order of the day.

Paper money, in the modern sense, has its origin in India in the late 18th century with the note issues of private banks as well as semi-government banks. Amongst the earliest issues were those by the Bank of Hindoostan, which was the first joint stock bank established in 1770, the General Bank in Bengal and Behar, and the Bengal Bank. Later, with the establishment of three Presidency Banks since 1809, the work of issuing notes was taken over by them and each Presidency Bank had the right to issue notes within certain limits. The private banks and the Presidency Banks introduced other payment instruments in the Indian money market and cheques were introduced by the Bank of Hindoostan. Buying and selling bills of exchange became one of the items of business to be conducted by the Bank of Bengal from 1839. The Paper Currency Act of 1861 conferred upon the Government of India the monopoly of Note Issue, thus, bringing to an end the note issues of private and Presidency Banks. In 1881, the Negotiable Instruments Act (NI Act) was enacted, formalising the usage and characteristics of instruments like the cheque, the bill of exchange and promissory note. The NI Act provided a legal framework for non-cash, paper payment instruments in India and continues to be an operative legislation even today.

While the modern cheques came into being in India only in the 19th century, it is noteworthy that India had pioneered the use of non-cash based payment systems long ago, which established themselves as strong mechanism for the conduct of trade and business. The most important form of credit instrument that evolved in India was termed as ‘Hundis’ and their use was reportedly known since the twelfth century. Hundis were used as instruments of remittance, credit and trade transactions, and were of various types, each type with its own unique features. However, with the steady rise in volumes of trade and commerce and the growing confidence of the public in the usage of cheques, etc., there was also rapid growth in the payment transactions using these instruments. With the development of the banking system and higher volume of cheques used, the need for an organised cheque clearing process emerged amongst the banks. Clearing associations were formed by the banks in the Presidency towns and the final settlement between member banks was effected by means of cheques drawn upon the Presidency Banks. With the setting up of the Imperial Bank in 1921, settlement was done through cheques drawn on that bank. After the establishment of the RBI in 1935, the Clearing Houses in the Presidency towns were taken over by the RBI, and continued with it for more than five decades.

It is noteworthy that the volume of paper-based clearing we handle is the sixth largest in the world and during the year April 2007 to March 2008 about 1.46 billion cheques were cleared in the country. The total number of cheques cleared and the value during the last three years in India are as follows:

Type	Volume (in billion)

(April – March)			Value (Rupees in lakh crore)
	2005-06	2006-07	2007-08	2005-06	2006-07	2007- 08
Total Cheques	1.29	1.37	1.46	113.29	120.42	133.96
Of these: a) MICR	1.03	1.14	1.22	94.74	104.35	115.29
b) Non MICR	0.026	0.023	0.024	18.55	16.07	18.67

In the wake of financial sector reforms, the maturing of the banking system and the rising volume of paper-based clearing, the RBI has now adopted a policy stance of moving away from the actual management of retail payment and settlement systems. Thus, for a few years now, the task of setting up new MICR-based cheques-processing centers has been delegated to the commercial banks. The management of clearing houses also stands decentralised to a large extent and in many cities and towns, the commercial banks have been entrusted with the management of the bankers’ clearing houses.

Just to provide an overview, let me mention for record that at present, there are 1089 Bankers’ Clearing Houses operating in India, of which 1036 are managed by State Bank of India and its Associates, 17 by the Reserve Bank, and the remaining 36 by 12 nationalised banks. The mechanised cheques processing using MICR technology (Magnetic Ink Character Recognition) is now available at 60 locations and six more locations are being upgraded with this technology. Thus, the computerised clearing houses numbering 915 (including the 60 MICR centres), account for 84 per cent of the total number of clearing houses in the country. This demonstrates that our payment system has indeed made remarkable progress during the last two decades, with ongoing adoption and up-gradation of technology.

Objectives of the Payment System

As some of you might recollect, a monograph on Payment Systems in India was prepared by the RBI in 1998 to increase the awareness, both within the country and abroad, of the payment systems existing in India. The monograph also detailed the objectives that needed to be achieved. To that end, a Payment System Vision Document for 2001-04 was prepared to draw up the roadmap for consolidation, development and integration of payment systems in the country. Once these objectives were achieved, a Vision Document for 2005–08 was published in May 2005, articulating the Reserve Bank’s vision for the coming four years for the payment and settlement area. The mission enshrined in the Vision Document is the establishment of safe, secure, sound and efficient payment and settlement systems for the country, towards which all the upgradation efforts are focused. Whereas safety in payment and settlement systems relates to risk reduction measures, security pertains to confidence in the integrity of the payment systems. All payment systems are envisaged to be on sound footing with adequate legal backing for operational procedures and transparency norms. Efficiency enhancements are envisaged by leveraging the benefits of technology for cost-effective solutions. Thus, as part of its public policy objectives, the Reserve Bank has played a major role in the design, development and functioning of payment and settlement systems, and the multi-dimensional efforts of the RBI over the years have been geared to realise this vision.

The Role of the RBI

The development of a payment system is one developmental role that is common to most of the central banks. It is well recognised that an efficient payment and settlement system is essential for efficient functioning of the modern financial system. The Reserve Bank has, therefore, played a catalytic role, over the years, in creating an institutional framework for development of a safe, secure, sound and efficient payment system for the country. It has also initiated a variety of institutional, procedural and operational measures to strengthen and refine the payment system. In order to place the efforts of the RBI in a proper perspective, allow me to briefly trace some of the salient developments, chronologically.

Remittance Facilities Scheme

Many of you might remember that one of the earliest mechanisms for movement of settlement funds of banks between the clearing centres was provided by the Reserve Bank as far back as in 1940. Since October 1, 1940, the Reserve Bank has been operating an integrated Remittance Facilities Scheme, which facilitates transfer of funds between banks located at different centres in the country, expeditiously and with a minimum cost. The Scheme is operated by the Reserve Bank and the public sector banks as its agents, including treasuries and sub-treasuries of the government. In other centres, the SBI operates a remittance scheme to enable banks to fund and draw upon their various settlement accounts. In the absence of the SBI, its associate banks or the public sector banks managing the clearing house, provide the remittance facility. The Scheme has served us well and enables smooth movement of settlement funds between all the clearing centres.

Clearing House Regulations

As you are aware, the bankers’ clearing houses constitute the critical nodes in the entire payment system of the country and their efficient and orderly functioning is crucial for a robust payment system. However, prior to 1986, there were no formal regulations and rules governing the transaction of business in the clearing houses and each clearing house had its own rules and regulations, based on local conventions and convenience. Hence, in case of disputes, resolution of the problem proved to be difficult. In 1986, therefore, the Reserve Bank formulated a set of guidelines known as the Uniform Regulations and Rules (URR) for the Bankers' Clearing Houses, so as to harmonise, across the country, the framework governing the conduct of the clearing houses. These guidelines had also become necessary in the backdrop of increasing computerisation in the banking industry and the consequential changes in the functioning of the clearing houses. The Regulations have since been adopted individually by the general body of each clearing house in the country. Individual clearing houses are free to frame their own rules consistent with the broad framework provided by the Regulations. The Uniform Rules and Regulations represent a significant step forward in providing a formal institutional framework for the payment system in the country.

The Board for Payment & Settlement System

In order to strengthen the institutional framework for the payment and settlement systems in the country, the Reserve Bank constituted, in 2005, a Board for Regulation and Supervision of Payment and Settlement Systems (BPSS) as a Committee of its Central Board. The Board is chaired by the Governor, RBI while all the four Deputy Governors and two external Directors of the Central Board are its members. The role of the BPSS is to lay down policies relating to the regulation and supervision of all types of payment and settlement systems, set standards for existing and future systems, approve criteria for authorisation of payment and settlement systems, and determine criteria for membership to these systems, including continuation, termination and rejection of membership. Thus, the BPSS is the highest policy making body in regard to the payment and settlement systems in the country and encompasses electronic, non-electronic, domestic and cross-border payment and settlement systems which affect the domestic transactions. In its relatively short span since its inception, the BPSS has provided valuable guidance in shaping the emerging contours of the payment and settlement system in the country and has helped widen the reach of the payment services of the banks to the hinterland areas.

Payment and Settlement Systems Act 2007

It is internationally acknowledged that payment and settlement systems should function on a well-founded legal basis. This entails among other things, proper authorisation requirement for setting up and payment systems, legal recognition for netting, settlement finality, providing for regulation and oversight of the payment and settlement systems. Many countries have either provided for these requirements in their central bank statutes or have drafted separate and comprehensive laws for this purpose. In India where the economy is growing at a fast pace increasingly large volumes and values are being handled by payment systems. Non-bank entities who are outside the explicit regulatory purview of the central bank are running/ are likely to run important payment systems. A number of innovative payment instruments/ systems have been introduced by unregulated entities. While large payment systems which are unregulated present risks to the stability of the financial systems, unauthorised retail payment systems without proper management and operational structures can undermine public confidence in the efficacy of the payment systems as a whole. The Reserve Bank and the Government felt that there should be an explicit law to regulate the payment and settlement systems. The Parliament has enacted the Payment and Settlement Systems Act in December 2007. This Act empowers the Reserve Bank to regulate and supervise the payment and settlement systems and provides a legal basis for multilateral netting and settlement finality. The Act empowers the Reserve Bank to lay down the policies for regulation and supervision of the payment and settlement systems, authorise their setting up/continuance, for issuing directions, laying down standards, calling for information/data, initiating prosecution/levying penalties for violation of the provisions of the Act, its regulations and directions etc. The Act will come into operation very shortly.

Umbrella Organisation for retail payments

In India the retail paper-based and electronic clearing is carried out by about 1089 clearing houses all over the country run by RBI, State Bank of India, its associate banks and other public sector banks. The multiplicity of local operators and diverse local practices which determine the conduct of clearing quite often compromises safety and efficiency of the clearing operations besides not giving due importance to customer service. This situation limits the scope for product innovation and expanding the reach of the payment systems. The Reserve Bank in its Vision Document (2005-08) for the Payment Systems in India, expressed its intention to move away from the operation of the retail payment systems and concentrate on operating the RTGS system, regulating and overseeing the payment systems and providing the settlement accounts for important payment systems. It also envisaged the setting up of an institution at the national level to own and operate all retail payment systems in the country. The setting up of this umbrella organisation would bring greater efficiency by way of uniformity and standardisation in retail payments, expand its reach and bring innovative payment products to augment customer convenience. The Indian Banks Association set up a Working Group which examined this issue and suggested the modalities for setting up this organisation. This organisation to be known as the National Payments Corporation of India (NPCI) will be an entity registered under the Companies Act and will be owned by banks and financial institutions. NPCI will be a Section 25 company, which will not distribute its profits as dividend, but will plough it back for the improvement and expanding the reach of the retail payment systems. The ownership of the company will be suitably diverse with no bank or group of banks having shareholding exceeding 10 % of the total shareholding. The Payment and Settlement Systems Act 2007 has laid down that such not less than 51% of the equity of this company will be held by public sector banks. The work relating to the setting up of NPCI is in progress.

Let me now say a few words about the RBI’s initiatives in the area of electronic payment system.

Reserve Bank’s initiatives for electronic payments and banking

As part of its public policy objective of promoting a safe, secure, sound and efficient payment system, the Reserve Bank has taken several initiatives to develop and promote electronic payments infrastructure. Towards this end, the RBI introduced the Electronic Clearing Service (ECS) and the Electronic Funds Transfer (EFT) system in 1995, the Real Time Gross Settlement (RTGS) system in March 2004, the National Electronic Funds Transfer (NEFT) system in November 2005 and Cheque Truncation System (CTS) in February 2008. Let me present a brief overview of these payment-system products launched by the RBI.

Electronic Clearing Service

With a view to upgrading our payment system to the international standards, the Reserve Bank took the initiative and set up Electronic Clearing Service in India, in the mid 1990s, which is the counterpart of the automated clearing house (ACH) system in certain other countries. It has two variants – ECS - Credit Clearing and ECS - Debit Clearing. While the Credit Clearing operates on the principle of ‘single debit-multiple credits’ and is used for making payment of salary, pension, dividend and interest, etc., the Debit Clearing functions on the principle of ‘single credit-multiple debits’ and is used for collecting payments by utility service providers like electricity, telephone bills as well by banks for receiving principal / interest repayments for housing and personal loans from the borrowers. At present, about 18 million transactions flow through the ECS system every month. This facility is currently available at 70 centers in the country. Settlement takes place on T+1 basis and the cycle gets completed on T+1. RBI is also in the process of developing a National ECS system – about which I will talk a little later.

Internet Banking

It may be recalled that pursuant to advent of internet-based banking in India, the RBI had appointed a Working Group on Internet Banking in 2001 to address the issues relating to technology and security, legal aspects, and the regulation and supervision of the internet banking activities of the banks. The recommendations of the Group were accepted for phased implementation and detailed guidelines on internet banking were issued by the RBI to the banks in June 2001, for adoption by the banks offering internet banking facilities. Even though the Group had made the recommendations in the context of the internet banking, these were to be applicable, in general, to all forms of electronic banking, to the extent relevant. The banks are now permitted to offer internet banking facilities based on the Board-approved internet banking policy and no longer require prior RBI approval. The product portfolio to be offered through internet banking is also no longer confined to only the local currency products but even foreign exchange services, for the permitted underlying transactions, can be offered through internet banking. Operations on the Vostro accounts of the overseas banks and exchange houses, maintained with the banks in India, are also permitted through the internet-based operations. Needless to say, the overarching concern in providing internet banking would be the effective management of the incremental operational risks acquired by the banks in using this new delivery channel for the banking services.

Real Time Gross Settlement System

The payment system in the country largely follows the deferred net settlement regime, under which the net amount is settled between the banks, on a deferred basis. Such a dispensation entails an element of settlement risk. Hence, as a step towards risk mitigation in the large value payment systems, the RTGS was operationalised by the RBI in March 2004, which enables settlement of transactions in real time, on a gross basis. Almost all the inter-bank transactions in the country and many time-critical customer transactions are now settled through this system. RTGS is fully secured electronic funds transfer system where banks and customers can receive payments on real time basis. The outreach of RTGS transactions has also grown geographically. Out of about 75,000 bank branches in the country, more than 48,300 bank branches now accept requests for remittance through RTGS system for customer transactions as well as inter-bank transactions. A minimum threshold of rupees one lakh has been prescribed for customer transactions to ensure that RTGS system is used only for large value transactions and retail transactions take an alternate channel of electronic funds transfer. The daily average of transactions is over 34,000 by volume and over Rs.2 lakh crore by value. The RBI also provides collateralised Intra-Day-Liquidity (IDL) support to the member banks for the RTGS operations. With the progressive expansion of the RTGS volume, a view needs to be taken on the continued need and relevance of the high-value clearing system – since the two systems have a functional overlap on account of the same value threshold and the target clientele.

National Electronic Funds Transfer System

Yet another product innovation by the RBI was the National Electronic Funds Transfer System, which was introduced in November 2005 as a more secure, nation-wide retail electronic payment system to facilitate funds transfer by the bank customers, between the networked bank branches in the country. It is a deferred net settlement system and is an improvement over other modes in terms of security and processing efficiency. It provides six settlement cycles a day and enables funds transfer to the beneficiaries account on T+0 basis. This facility is currently available at over 46,300 bank branches throughout the country. The daily average of the transactions is over 80,000 by volume and over Rs.500 crore by value. It is envisaged that all the RTGS-enabled bank branches would also be NEFT-enabled and the customer would have a choice between the RTGS or the NEFT systems, based on time criticality, value of the transaction and willingness of the customer to pay different charges for the two systems. With the introduction of NEFT, the Electronic Funds Transfer system, introduced in 1994 for retail funds transfer, is now available only for Government payments. Let me also mention that using the NEFT infrastructure, the system of one-way remittance from India to Nepal has been implemented by the RBI since 15th May 2008.

Cheque Truncation System (CTS)

The latest electronic payment product introduced by the RBI is the Cheque Truncation System, which was launched, on a pilot basis, in the National Capital Region of New Delhi on February 1, 2008, with the participation of 10 banks. At present all the banks are participating in the system through 53 direct member banks. The main objective of the CTS is to improve the efficiency and substantially reduce the cheque processing time in the system. The traditional clearing system requiring the physical presentation of cheques in the clearing house for payment and settlement, inevitably entails consequential inefficiencies in terms of clearing time and infrastructure required. The enormity of the logistics needed for physical cheque clearance can be gauged from the fact that we cleared about 1.46 billion cheques in the country during the year April 2007 to March 2008. In contrast, the main advantage of cheque truncation is that it obviates the physical presentation of the cheque to the clearing house; instead, the electronic image of the cheque would be sent to the clearing house. The CTS would enable the realisation of cheques on the same day, and provide a more cost-effective mode of settlement than manual and MICR clearing. Smaller banks, which may find it unviable to set up the infrastructure, could utilise the services of service bureaus set up for this purpose by a few larger banks.

Once the CTS become fully operational, the system would be the largest in the world and would leapfrog the country from the paper-based instruments to a fully electronic mode of payment and settlement. Necessary amendments have been made to the Negotiable Instruments Act, 1881, which provides legal recognition to the electronic image of the truncated cheque. These amendments provide a legal basis for the cheque truncation system. .

National Electronic Clearing Service (NECS)

The National ECS is a product being developed by the RBI to enable centralised processing of the ECS transactions, in contrast to the existing ECS system that has decentralised operations at 70 locations, spread all over the country. Under the National ECS, the processing of all the ECS transactions would be centralised at the National Clearing Cell at Nariman Point, Mumbai and sponsor banks would need to only upload the relative files to a web server, with online data validation facility. Destination banks would receive their inward clearing data / file at a central location, through the web server. The National ECS would leverage the Core Banking platform of the commercial banks, to enable around 50,000 core-banking-enabled branches of the various banks, to avail of this service. The system would facilitate end-to-end seamless posting of the NECS transactions in a straight-through-processing (STP) environment. This would help the users and member banks to send, receive and process the data files at one centralised place, thereby improving the efficiency of the payment system.

Mobile banking

As you are no doubt aware, with the rapid growth in the number of mobile phone subscribers in India, the banks have been exploring the feasibility of using mobile phones as an alternative channel of delivery of banking services. A few banks have also started offering, through the mobile phone, information-based services like balance enquiry, stop-payment instruction of cheques, record of last five transactions, etc. Considering that the use of this technology for the banking services is relatively new and calls for appropriate safeguards to ensure security of financial transactions, the Reserve Bank has formulated the ‘Draft Operating Guidelines for Mobile Payments in India', through a consultative process and placed them on the RBI’s website in June 2008 for public comments. It is expected that the guidelines when operationalised, would help strengthen the operating environment for mobile banking in the country.

Satellite Banking

The availability of reliable communication network is an important prerequisite for facilitating electronic modes of payment. However, the non-availability of the terrestrial communication link in many parts of the country, particularly the hinterland and hilly areas, poses a major constraint in securing greater penetration of electronic payment services in such areas. For such difficult terrain, which is not connected by terrestrial links, the satellite connectivity is considered to be the appropriate mode of connecting the branches in these areas, as also as a fallback system. In this background, a paper was prepared by a member of the Board for Payment and Settlement Systems of the Reserve Bank on the use of satellite communication technology to facilitate penetration of payment services to the rural areas which are denied these facilities due to non- availability of reliable communication links. A Technical Group constituted by the Reserve Bank has since examined the proposal and recommended the use of satellite connectivity as it would facilitate integration of the rural branches with the core banking solution platform of the banks and help them providing efficient funds-transfer facility to their customers.

However, reckoning the cost implications involved in creating satellite connectivity for the bank branches, the Reserve Bank is considering provision of financial incentive to the banks for adopting this technology. Under the proposal, the RBI would be bearing a part of the leased rentals for the satellite connectivity, provided the banks use it for connecting their branches in the North Eastern States and in the under-banked districts in the rest of the country. A discussion paper on this scheme was placed on RBI website in June 2008 for public comments.

I may add that the satellite communication link is the most disaster-proof, since the satellite, up in the sky, continues to function even in the face of major natural disasters on earth, such as floods or earthquakes. It is, therefore, ideally suited for use as a back-up communication link for the major centers in the country, where a disaster can otherwise disrupt the terrestrial connection.

The challenges ahead

We have no doubt covered considerable ground in modernising our payment and settlement system. The banking system too has made considerable investment in the related infrastructure to upgrade the payment system. However, there are several challenges that need to be effectively addressed if the full benefits of the achievements so far are to be reaped.

One of the main challenges in the payment system area is to promote large-scale use of the electronic modes of payment across the country and requires addressing the constraints that impede the adoption of this mechanism. To my mind, the primary reason for slow pace of adoption of the electronic modes of funds transfer, particularly in the retail segment, is the lack of education – particularly on the part of the bank staff at the branch level that have interface with the public. A survey conducted by one of the Regional Offices of the RBI in the recent past revealed that in the limited sample covered, there were several bank branches in the State which were not even aware of the National Electronic Fund Transfer system. The banks, therefore, need to make concerted efforts to increase the degree of awareness at the level of the branch staff so that the electronic fund transfer services percolate down to the level of the public in a significant manner.

The other side of the coin is the lack of customer education and awareness about the features and benefits of the EFT, which precludes wider adoption of this product and leads to carrying on with the traditional modes of payment. I would, therefore, like to urge upon the banks to launch a systematic educational campaign for their clients to educate them of the suite of electronic products offered by them. This would not only reduce the avoidable paper work in the operation of the banks but would also improve the quality of customer service and eventually, business volume.

In so far as the RBI is concerned, with a view to promoting the electronic payment culture and to make it more user-friendly, the RBI has intervened and mandated reasonability in pricing of transactions effected through ATMs and compulsory use of electronic mode for transactions above a specified threshold. The service charge levied on banks by the RBI for ECS, EFT / NEFT and RTGS transactions has been waived until March 2009, so that this benefit of reduced costs is passed on to customers, and the right incentive framework is created for the use of electronic retail payment products. Similarly, the limits set for ECS and EFT / NEFT transactions were also dispensed with in November 2004 with a view to expanding the user base. This, of course, is apart from various measures taken by the RBI for strengthening the payment systems infrastructure in a variety of ways.

Although the share of electronic payment products is improving in the overall retail segment, the share of public sector banks in this area is very low even as the number of branches offering the electronic payment facility is increasing. It is, therefore, necessary to make these products available across all bank branches. There is also a need to focus on expanding the geographical reach of the electronic payment services so as to include the segments of the population not yet touched by it. It is difficult to achieve financial inclusion without encompassing rural-India in the payment system out-reach and the banks that do so first, will reap the rewards of the ‘first-mover advantage’ in terms of higher market share, with the concomitant increase in business and revenues. And as we all know, the electronic payment medium is not only speedier and more efficient, but is also more environment friendly as it reduces the reliance on paper required for effecting payments. It is our vision that electronic products reach a level of 50% by volume and 95% by value of the aggregate payment system transactions in the country, by the end of March 2009.

Then, there are also some nagging efficiency issues in the payment system. Whilst the current clearing cycle of T+1 basis for the cheques payable locally, compares favourably with the best in the world, it is necessary to look into the entire cheque collection cycle – from the time a customer deposits a cheque at a branch till the point of realisation of credit in his account. There is perhaps scope for continuous improvement in overall collection cycle. Going by the number of complaints received, it appears that customer-service in this area is not very customer-centric.

Conclusion

The payment and settlement system constitutes the backbone of the financial sector and enables conclusion and settlement of financial contracts. The country has made phenomenal progress in enhancing the reach and improving the efficiency of the national payment system – in which the RBI and the banking system have been equal partners. Creating a world-class payment system in the country is a long, arduous but an exciting journey in which we have to constantly keep striving to better our past achievements. I am sure the banking community present here would make dedicated and systematic efforts in this direction to meet the challenges ahead and actively contribute to realising our vision for the payment system that we have set for ourselves.

Thank you.

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