Etiquette rules for banks on way

New Delhi, April 17 (PTI): Bank customers may soon expect better services and speedy redressal of their grievances as the Reserve Bank of India is likely to consider a fresh set of rules to improve customer service practices.

Almost a year after the RBI put in motion a process to improve customer service, a panel set up by the apex bank is ready to submit its recommendations later this month.

Sources said the panel was likely to suggest a tighter vigil by the RBI for banks lacking in customer service, monetary and procedural penalties.

Besides, banks may be asked to resolve various grievances within a pre-determined time.

The committee was constituted in June under the chairmanship of former Sebi chief M. Damodaran.

The panel, which comprises representatives from the banking industry, had completed its draft recommendations by January and was expected to submit the report in February. However, the panel decided to redraft the proposals after receiving fresh inputs from various stakeholders and its final recommendations are almost complete.

It will be the first major report on customer services after one in the early 1990s by the M.N. Goiporia committee, headed by the then SBI chairman.

The panel is also said to be in favour of giving more teeth to the banking ombudsman through legal measures. The Banking Ombudsman Scheme was established by the RBI in 1995 to provide speedy solutions to customer grievances.

The RBI will frame its final guidelines after studying the recommendations.

The banks will have to tell the customers beforehand about the expected time they will take to provide the services. The committee may also suggest reviewing the entire system of attending to customers, including the approach, attitude and fair treatment. 

Courtesy : The Telegraph

Settling the dues -Bank

The financial difficulties faced by families on account of delayed settlement of life insurance claims are well known. What’s generally not known is the problems that legal heirs run into when it comes to accessing the bank accounts and lockers of deceased depositors

The banking regulator— the Reserve Bank of India (RBI) — is, however, aware of this and has issued detailed instructions to banks on the subject, aimed at reducing the hassles faced by relatives. Yet, all banks don’t follow the regulator’s instructions in letter and spirit, resulting in considerable hardship for the surviving family members.

Firstly, when a customer opens an account or hires a locker, the bank is supposed to advise him or her on the imperative need for nominations. Similarly, term deposits should have nominations and even if the depositor is unaware of its importance or forgets about it, the banks have a responsibility in ensuring that it is done. Banks, however, never take this task seriously.

In fact, the regulator has also advised banks to educate customers on the importance of the “survivorship clause” in case of joint accounts, as otherwise the surviving joint account holder does not automatically get the right to the account.

Similarly, in respect of term deposits, the RBI says that banks should not insist on completion of the term of the deposit and should allow premature termination on the death of the deposit holder. Yet, there are many cases where banks have refused to cut short the term of the deposit and denied the deposit amount to the legal heirs in urgent need of money.

Even where the deceased depositor has not made any nomination, banks should adopt a simple procedure for repayment to the legal heirs, advises the regulator. In fact, on June 9, 2005, the banking regulator issued detailed instructions to banks on how to simplify and expedite claim settlement following the death of a depositor. Even after six years, such simplified procedures elude family members.

In fact, the RBI circular sets a time limit of 15 days for settling the claims in respect of deceased depositors. I wonder how many banks really stick to this time limit?

Well, in order to keep tabs on this, the regulator suggests banks should report to the customer service committee of the bank’s board the details of the number of claims received and the time taken for settlement and if there has been a delay, the reasons for it. It’s time the regulator asked banks to make this information public. 

Courtesy : The Telegraph

Cheque mate

Saikat Neogi
Posted online: 2011-02-15 23:38:28+05:30

Two months after the Reserve Bank of India (RBI) introduced the new guidelines for the Cheque Truncation System (CTS) in the National Capital Region, some customers have had a nasty surprise: Many cheques started returning to issuers, due to alterations and over-writing in them.

The CTS is an online image-based cheque clearing system where cheque images and Magnetic Ink Character Recognition (MICR) data are captured at the collecting bank branch and transmitted electronically. In this process, the existing system of settlement of payment on the basis of physical cheque movement is eliminated.

The technology was introduced in the NCR and will be subsequently implemented in Chennai by the middle of the year and in other places like Mumbai. This will minimise the scope for frauds and provide benefits to both banks and the customers. As a result, any cheque which has over-writing or other corrections will be returned to the issuer of the cheque. However, changes or correction can be done on dates and for any other changes, one needs to issue a fresh cheque.

The cheque images captured at the presenting bank in the NCR are transmitted to the clearing house for onward transmission to the payee or drawee bank. It is the responsibility of the drawee bank to capture the inward data and images and generate the return file for unpaid instruments.

The electronic image of the cheque is sent to the drawee branch along with the image of the deposit slip which is clipped with the cheque by the customer. CTS reduces the scope for clearing-related frauds and minimises the cost of collection of cheque. For the bank, the benefits would be immense which would help them to introduce new products and optimise resources. Globally, CTS is being practised across many countries for faster clearing of cheques.

The RBI has given a directive to banks prohibiting alterations/corrections on cheques cleared under the image-based CTS. The central bank has also clarified that rule does not apply to cheques cleared under other clearing arrangements such as MICR clearing,non-MICR clearing, over-the-counter collection (for cash payment), or even for direct collection of cheques outside the Clearing House arrangement.

Diwakar Nigam, managing director of Newgen Software, the company which has developed the CTS software in NCR, says the system offers better reconciliation and will help prevent fraud. “It will also help a customer to get clearance within NCR in one day’s time and bring in efficiency in the process. It will also reduce the heavy paper-load as the process will be completely digitalised.” He says the second stage will cover Chennai and other southern regions and then to Mumbai. However, it will take three to five years to implement the process across the country.

Realisation of proceeds of cheques can be done the same day itself and not 3-4 days which is currently the case across the country. For inter-city cheques, it takes two days for the clearance. CTS is more secure and is protected by a comprehensive Public Key Infrastructure-based security architecture which incorporates basis security and authentication checks such as dual access control. It is more secure a system and does not create any delay or inconvenience to the customer in case the cheque is lost in transit.

Bankers say customers should use a dark-colour black ink pen while drawing the instruments and utmost care must be taken while using the rubber stamp and it should not be used on the printed code of the instruments. The physical cheque is warehoused with the presenting bank, in case the customer wants to get back the instrument.

Experts the central bank must conduct an awareness campaign on over-writing and other corrections on cheques. “People usually sign near the correction as that is what has been done for many years. But with CTS, a cheque which has an alteration, even with a signature beside the alteration the bank will not accept the cheque and instead return it to the customer,” says a banker.

Analysts say customers will have to be careful while issuing cheques for credit card payments, utility payments, insurance and investments, as most of them are linked to late payment fees. As a result of the central bank’s new directive, many utilities have been turning away cheques with any form of correction or alteration even if the changes were validated by the cheque drawer’s signature and that too in places either than the NCR. To avoid any late payment charges, they must pay well before time so that in case the cheque is returned, the customer will have enough time to issue a fresh cheque.

Courtesy: FE

Review of Service Charges for Cheque Collection – Local, Outstation and Speed Clearing

RBI/2010-11/377
DPSS.CO.CHD.No. 1671 / 03.06.01 / 2010-11

January 19, 2011

The Chairman and Managing Director / Chief Executive Officer
All Scheduled Commercial Banks includin RRBs / UCBs /
State Co-operative Banks / District Central Co-operative Banks
Madam / Dear Sir,
Review of Service Charges for Cheque Collection – Local, Outstation and Speed Clearing
Given the advantages of using electronic modes for initiating payments, especially for large value transactions, Reserve Bank of India has been taking concerted steps towards increasing the acceptability, reach and efficiency of electronic transactions. Paper-based instruments, however, continue to account for a significant volume of payments in the country. Reserve Bank has therefore been encouraging the use of technology and the core-banking infrastructure of the banking system for reducing the clearing cycle and movement of cheques, both local and outstation.
2. In this regard, attention of banks is invited to our circulars DPSS.CO.No.611 / 03.01.03(P) / 2008-09 dated October 8, 2008 and DPSS.CO.No.829 / 03.01.03(SC) / 2008-09 dated November 17, 2008 in terms of which, charges for Outstation Cheque Collection as also cheques collected under the Speed Clearing arrangement were mandated by the Reserve Bank for different value bands.
3. On a review of the developments in this regard, it has been decided to revise the charges structure. While Reserve Bank would continue to mandate charges for smaller value transactions relating to savings account customers, greater freedom is being accorded to banks to determine charges for larger value transactions, subject to such charges being levied by the banks in a fair and transparent manner. These measures are expected to hasten the migration of transactions to electronic mode.
4. Accordingly, the following service charge structure will come into effect from April 1, 2011.
(a) Service (Processing) Charges for Local Clearing (by Clearing Houses from Member Banks) –

System	Existing (Rs.)		Revised (Rs.)
	Presenting Bank	Drawee Bank	Presenting Bank	Drawee Bank
Clearing at MICR-CPCs	1.00	1.00	1.00	1.50
Cheque Truncation	0.50	0.50	0.50	1.00

(b) Service Charges for Outstation Cheque Collection –

Existing (Rs.)		Revised (Rs.)
Value	Service charge from all customers	Value	Service charge from Savings a/c customers
Up to and including 10,000	50	Up to and including 5,000	25^
		Above 5,000 and up to and including 10,000	50*^
Above 10,000 and up to and including 1,00,000	100	Above 10,000 and up to and including 1,00,000	100*^
Above 1,00,000	150	Above 1,00,000	Left to the banks to decide
* No change.                                       ^ All inclusive maximum amount chargeable by banks to the customers.

(c)  Service Charges for Cheque Collection under Speed Clearing (by Collecting Banks from customers) –

Existing (Rs.)		Revised (Rs.)
Value	Service charge from all customers	Value	Service charge from Savings a/c customers
Up to and including   1,00,000	Nil	Up to and including 1,00,000	Nil*
Above 1,00,000	150	Above 1,00,000	Left to the banks to decide
* No change.

5. Banks are free to fix charges for collection of instruments for credit to other types of accounts.
6. While fixing service charges not mandated herein, banks may note the following –
(a) The service charge structure put in place by the bank should have the approval of the Board of Directors.
(b) Charges fixed should be reasonable and computed on a cost-plus-basis and not as an arbitrary percentage of the value of the instrument. The service charges-structure should not be open ended and should clearly specify the maximum charges that would be levied on customers including charges if any, payable to other banks.
(c) While sharing service charges, banks may be guided by the provisions of circular CIR / RB-I / CCP / 64 dated April 8, 2010 issued by the Indian Banks' Association.
(d) Banks may note to ensure that collection charges fixed for instruments of any value is lower under Speed Clearing vis-a-vis Outstation Cheque Collection so as to encourage the use of Speed Clearing.
(e) The service charges mandated / fixed by banks are inclusive of all charges (postal, courier, handling, etc.) other than service tax.
7. Banks shall use electronic modes like RTGS / NEFT to remit clearing proceeds to the collecting bank branch availing of Outstation Cheque Collection facility.
8. These directions are issued by the Reserve Bank of India in exercise of the powers conferred by Section 18 of the Payment and Settlement Systems Act, 2007 (Act 51 of 2007).
Yours faithfully,
(G Padmanabhan)
Chief General Manager

Ministry of Finance Notification recognises Aadhaar number for Opening of Bank Accounts

A Ministry of Finance, Government of India, notification dated the 16 of December 2010 has recognized Aadhaar number issued by the Unique Identification Authority of India (UIDAI) as an “officially valid document” to satisfy the Know Your Customer (KYC) norms for opening bank accounts.

This notification is expected to promote the financial inclusion of the poor and the hitherto excluded by making it possible for them to easily establish their identity and open bank accounts.

The UIDAI is facilitating opening of bank accounts for the residents at the time of enrolment for Aadhaar through partner banks and acceptance of Aadhaar as a valid KYC will make the process seamless.

24 Hours Payment System By NPCI

National Payment Corporation of India (NPCI) is providing Interbank Mobile Payment Service (IMPS) with seven banks viz, State Bank of India, ICICI Bank, Union Bank of India, Bank of India, Yes Bank, Axis Bank, HDFC Bank. The service allows a customer in one bank to remit funds to an account holder in another bank. Mobile phone is used as a service delivery channel of the member banks. For providing this offer, the bank needs to have authorization from Reserve Bank of India and has to be admitted as a member of IMPS. Till 31st March 2011, NPCI will be providing the service to the member banks free of charges. Thereafter switching fee of Rs. 0.25 per transaction will be levied by NPCI to member banks. Member banks may levy a fee on the customers as per the policy formulated by them. However for the present, they have also been providing this service free of charges.

This information was given by the Minister of State for Finance, Shri Namo Narain Meena in written reply to a question raised in Lok Sabha.

Levy of Cash Handling Charges by Banks

Normally banks do not charge from their customer for depositing money to their own account. However, some banks levy charges for cash payment against credit card bills. Charges are collected at the time of accepting cash. As per the Reserve Bank of India (RBI) guidelines banks need to inform about changes in rates or charges to their customer one month before implementation. RBI vide its circular dated September 7, 1999 had given freedom to banks to decide service charges for various services offered to customers. Banks were asked to fix service charges having regard to the cost of rendering the services. Banks were also advised to ensure that the charges are reasonable and not out of line with the average cost of providing these services. Banks should also take care to ensure that customers with low volume of activities are not penalized.
According to RBI, the currency chest holding banks have been allowed to levy service charge of Rs. 2 per packet of 100 pieces in cash deposited with their currency chest by non-currency chest branches. Banks have also been advised to put in place a transparent policy in this regard with the approval of their respective boards.

This information was given by the Minister of State for Finance, Shri Namo Narain Meena in written reply to a question raised in Rajya Sabha.

Use your bank account to avoid penalty

If you fail to carry out any transaction for 24 months through your bank account, it can be frozen. This is in line with the Reserve Bank of India's (RBI) mandate, that a bank account automatically gets classified as inoperative or dormant if there are no 'customer-induced transactions' for that period. 

These include any debit or credit transactions, as well as third-party deposits or remittances. However, according to the guidelines, the bank cannot freeze your account if you fail to meet the minimum balance requirement.  Also, if banks deposit the interest earned on fixed deposit in your account, the guidelines consider it as a customer-induced transaction, keeping the account operational.

You can avoid all this, by making small transactions routinely. For example, you can use the account for small ATM withdrawal or payments.  If you have shifted cities or countries, you can use netbanking to transfer small sums between two accounts. If the account is no longer useful, best is to close the account. Normally, the bank would intimate the customer two to three months prior to the account becoming inoperative. If you still don't take any action, the bank will send a letter declaring the account dormant. 

Charges: An inoperative account may not affect your credit history. But, it would attract a penalty, depending on the bank's policy.  The penalty is levied only for the period during which the account is classified as being non-operational. This charge of Rs 50-200 is mostly levied on an annual basis.

Additionally, if the account balance is below the average minimum requirement of the bank, the customer may have to pay non-maintenance fees for the period as well. The fees are payable on a quarterly basis. For instance, if you are holding an account with HDFC Bank , the average minimum balance if the account is held in an urban area or metro is Rs 10,000 and for an account held in a rural or semi-urban area is Rs 5,000.

A charge of Rs 750 would be levied on a quarterly basis if this minimum balance is not maintained. The charges may be hugely different for public sector and private sector banks. At Union Bank of India , failure to maintain a minimum average quarterly balance of Rs 1,000 in an urban area would attract a penalty of Rs 90 and for Rs 500, a penalty of Rs 60.

These charges are deducted directly from the account. And, "Once the entire balance is exhausted, the account is frozen and the customer is intimated accordingly. If he does not respond, the account is removed permanently from our system," says S Govindan, general manager, personal banking, Union Bank of India. 

While there is no fixed period before which the account is removed, it mostly takes one to two years.

Reactivation: According to RBI's guidelines, banks cannot levy any charges for activation of a dormant account. However, customers would have to first give a request letter to the branch at which the account is held. They will also have to comply with the know-your-customer (KYC) norms by submitting proof of residence and proof of identity.

Interest: Though the account is declared dormant, the bank would continue to pay interest on the balance. It would do so even if the account balance dips below the minimum balance requirement. The interest earned is liable for tax payment. It is considered as income from other sources and taxed, depending on the income slab. Since the banks do not send account statements for inoperative accounts, the onus lies with you to calculate your tax liability.

Homi Mistry, tax partner at Deloitte, Haskins & Sells, suggests, "If you know your account balance, you can estimate the interest payable to you and round it off to a slightly higher amount. You can then add it to your overall income to compute the total tax liability."

Courtesy : TaxGuru.in

Nominee of bank account does not get succession rights

The Supreme Court (SC) has clarified the nominee of a depositor in a bank does not get ownership of the money in the account after death of the depositor. The nominee gets exclusive right to receive the money lying in the account. It gives him all the right of the depositor as far as the depositor's account is concerned, according to Section 45ZA of the Banking Regulation Act. But the banking law is not concerned with the succession. The money in the account will form part of the estate of the deceased depositor and devolve according to the rules of succession. In this case, Ram Chander vs Devender Kumar, one son was the nominee of his mother. After her death, he claimed he was the owner of the money in the account, to exclusion of his brother. The same rule will apply to government savings and other investments.

Opening of bank accounts - salaried employees

RBI/ 2010-11/245
DBOD. AML. BC. No. 50/14.01.001/2010-11

October 26, 2010

The Chairmen/CEOs of all Scheduled Commercial Banks (excluding RRBs) /
All India Financial Institutions

Dear Sir,

Opening of bank accounts - salaried employees

Please refer to our Master Circular on Know Your Customer (KYC) norms /Anti-Money Laundering (AML) standards/Combating of Financing of Terrorism (CFT)/Obligation of banks under PMLA, 2002 issued to banks vide DBOD.AML.BC.No.2/14.01.001/2010 – 11 dated July 01, 2010. In Annex I to the circular an indicative list of the nature and type of documents/ information that may be relied upon for customer identification and address verification for opening bank accounts has been given.

2. It has been brought to our notice that for opening bank accounts of salaried employees some banks rely on a certificate/letter issued by the employer as the only KYC document for the purposes of certification of identity as well as address proof. Such a practice is open to misuse and fraught with risk. It is, therefore, clarified that with a view to containing the risk of fraud banks need to rely on such certification only from corporates and other entities of repute and should be aware of the competent authority designated by the concerned employer to issue such certificate/letter. Further, in addition to the certificate from employer, banks should insist on at least one of the officially valid documents as provided in the Prevention of Money Laundering Rules (viz. passport, driving licence, PAN Card, Voter’s Identity card etc.) or utility bills for KYC purposes for opening bank account of salaried employees of corporates and other entities.

3. These guidelines are issued under Section 35A of the Banking Regulation Act, 1949 and Rule 7 of Prevention of Money-Laundering (Maintenance of Records of the Nature and Value of Transactions, the Procedure and Manner of Maintaining and Time for Furnishing Information and Verification and Maintenance of Records of the Identity of the Clients of the Banking Companies, Financial Institutions and Intermediaries) Rules, 2005. Any contravention thereof or non-compliance shall attract penalties under Banking Regulation Act.

Yours faithfully,

(Vinay Baijal)
Chief General Manager

Opening of No-Frills accounts by students for availing various Government Scholarships

RBI/2005-06/204
DBOD.No.Leg.BC. 44/09.07.005/2005-06

November 11, 2005

To
All Scheduled Commercial Banks
(Excluding RRBs)
Dear Sir,

Financial Inclusion

Please refer to Paragraph 96 of the Mid-term Review of Annual Policy Statement for the year 2005-06.

2. The Annual Policy Statement of April 2005, while recognising the concerns in regard to the banking practices that tend to exclude rather than attract vast sections of population, urged banks to review their existing practices to align them with the objective of financial inclusion. In many banks, the requirement of minimum balance and charges levied, although accompanied by a number of free facilities, deter a sizeable section of population from opening / maintaining bank accounts.

3. In this context, with a view to achieving the objective of greater financial inclusion, all banks are advised to make available a basic banking 'no-frills' account either with 'nil' or very low minimum balances as well as charges that would make such accounts accessible to vast sections of population. The nature and number of transactions in such accounts could be restricted, but made known to the customer in advance in a transparent manner. All banks are advised to give wide publicity to the facility of such a 'no-frills' account including on their web sites indicating the facilities and charges in a transparent manner.

4. The number of such deposit accounts opened by the bank may be reported to us on a quarterly basis.

5. Immediate action may be initiated and compliance reported to us within one month.

6. Please acknowledge receipt.

Yours faithfully

(Prashant Saran)
Chief General Manager

PAYMENT SYSTEMS IN INDIA VISION 2009-12

GenNext Banking: Issues and Perspectives

Payment of interest on accounts frozen by banks

RBI/2009-10/119
DBOD.No.Leg.BC.30 /09.07.005/2009-10

August 12, 2009

All Scheduled Commercial Banks
(Excluding RRBs)

Dear Sir,

Payment of interest on accounts frozen by banks

Please refer to paragraph 5.8.9 of our Master Circular DBOD.No.Leg.BC.9/ 09.07.006/ 2009-10 dated July 1, 2009 on Customer Service, wherein banks have been advised to follow the procedure laid down thereunder in respect of Term Deposit Accounts frozen by the enforcement authorities.

2. In terms of paragraph 5.8.9 (i), banks were advised to obtain a request letter from the customer for renewal for a term equal to the original term, on maturity. On a review, it is felt that instead of renewing it for a term equal to the original term, it would be appropriate if the depositor is given the option to choose the term for renewal of the deposit.

3. Banks may, therefore, while obtaining the request letter from the depositor for renewal, also advise him to indicate the term for which the deposit is to be renewed. In case the depositor does not exercise his option of choosing the term for renewal, banks may renew the same for a term equal to the original term.

Yours faithfully

(B.Mahapatra)
Chief General Manager

Secure Online Shopping

To make online payments safer, the Reserve Bank of India has made it mandatory, for all online transactions to have an additional level of authentication from August 1, 2009 onwards. For Visa credit/debit cards, the additional level of security is the Verified by Visa password that you will have to enter after providing your credit/debit card details while making online bill payments through Visa Bill Pay.

You need to register with your issuing bank to obtain the Verified By Visa password. If you are not registered with your issuing bank, then your Visa card may be declined while making a payment through Visa Bill Pay, from August 1, 2009
What is "Verified by VISA" password?
Verified by Visa is a service that will let you create/use a personal password with your credit/debit card, giving you added assurance that only you can use your card to make purchases over the Internet

Here's how it works

1. Through your card issuer, set up your Verified by Visa password and activate your card in just a few minutes. To do so now, click here.		2. Once you activate your card, Verified by Visa protects you at every participating online store.

3. When you shop at a participating online store, your card will be automatically recognized as protected by Verified by Visa.		4. Look for your "Personal Message" to confirm that you are shopping at a legitimate merchant.

5. Enter your password correctly and the transaction will be completed as usual.

6. When you are completing your purchase, your issuer will verify your password

How do I get my Verified by Visa password?
Registering your Visa card for Verified by Visa password is very easy. Just login to your bank.s website, register your card for Verified by Visa and choose your password. The registration process may differ from bank to bank. Incase you are not already registered, please register with your bank right away.

Banks face fines for ATM errors

MUMBAI: Banks will now have to pay account holders a compensation of Rs 100 per day for every day of delay in reversing in failed transactions.
The Reserve Bank of India (RBI) has imposed stringent penalties on banks who fail to reverse a transaction where cash is not dispensed by the ATM but the customer’s account gets debited within 12 days.

In a circular issued on Friday, RBI has said banks must re-credit such customers’ accounts within 12 working days from the date of receipt of the complaint.

The circular is in response to complaints from customers who had to put up with delays in getting back money erroneously debited during failed ATM transactions. Besides imposing the stiff penalty, the central bank also made it clear that this amount needs to be credited to the customer’s account automatically on the day of the re-credit without the customer having to make a claim.
In case the delay is because of a third-party bank ATM through which the customer has transacted, the card-issuing bank must still pay the penalty to the customer. However, it will recover this amount from the bank that owns the ATM.

Similarly, if a non-bank network operator is the reason behind the delay, the bank will make the payment and recover the penalty from the operator.

Furthermore, the RBI has instructed banks to extend the scope of concurrent audit to cover cases of such delays. Banks are now also required to place a quarterly review of ATM transactions to its board of directors, indicating the quantum of penalties paid, reasons for the same, and the remedial action taken to prevent the recurrence of such cases. A copy will have to be forwarded to the central bank.

This apart, the Reserve Bank made a critical note of different banks setting different cutoff limits for permitting cash withdrawals from/for other bank customers.
Courtesy: Economic times

FREQUENTLY ASKED QUESTIONS ON THE PAYMENT AND SETTLEMENT SYSTEMS ACT 2007-RBI

Q1. When did Payment and Settlement Systems Act, 2007 (PSS Act, 2007) came into effect?

Ans. The PSS Act, 2007 received the assent of the President on 20th December 2007 and it come into force with effect from 12th August 2008.

Q2. What is the objective of the PSS Act, 2007 ?

Ans. The PSS Act, 2007 provides for the regulation and supervision of payment systems in India and designates the Reserve Bank of India (Reserve Bank) as the authority for that purpose and all related matters. The Reserve Bank is authorized under the Act to constitute a Committee of its Central Board known as the Board for Regulation and Supervision of Payment and Settlement Systems (BPSS), to exercise its powers and perform its functions and discharge its duties under this statute. The Act also provides the legal basis for “netting” and “settlement finality”. This is of great importance, as in India, other than the Real Time Gross Settlement (RTGS) system all other payment systems function on a net settlement basis.

Q3. What are the Reguations made under the PSS Act, 2007 and when did they come into force ?

Ans. Under the PSS Act, 2007, two Regulations have been made by the Reserve Bank of India, namely, the Board for Regulation and Supervision of Payment and Settlement Systems Regulation, 2008 and the Payment and Settlement Systems Regulations, 2008. Both these Regulations came into force along with the PSS Act, 2007 on 12th August 2008.

Q4. What are the objectives of these two Regulations?

Ans. The Board for Regulation and Supervision of Payment and Settlement Systems Regulation, 2008 deals with the constitution of the Board for Regulation and Supervision of Payment and Settlement System (BPSS), a Committee of the Central Board of Directors of the Reserve Bank of India. It also deals with the composition of the BPSS, its powers and functions, exercising of powers on behalf of BPSS, meetings of the BPSS and quorum, the constitution of Sub-Committees/Advisory Committees by BPSS, etc., The BPSS exercises the powers on behalf of the Reserve Bank, for regulation and supervision of the payment and settlement systems under the PSS Act, 2007.

The Payment and Settlement Systems Regulations, 2008 covers matters like form of application for authorization for commencing/ carrying on a payment system and grant of authorization, payment instructions and determination of standards of payment systems, furnishing of returns/documents/other information, furnishing of accounts and balance sheets by system provider etc., .

Q5. Does the PSS Act, 2007 define what is a “payment obligation”, “payment instruction”, “payment system” and other commonly used terms like “electronic fund transfer”, “gross settlement system”, “netting”, “settlement”, “systemic risk”, “system participant” and “system provider”?

Ans. Yes, these terms are defined in Section 2 (1) of the PSS Act, 2007.

Q6. What is a “Payment Obligation”?

Ans. “Payment obligation” is defined as what is owed by one participant in a payment system to another such participant which results from clearing or settlement or payment instructions relating to funds, securities or foreign exchange or derivatives or other transactions.

Q7. What is a “Payment Instruction”?

Ans. “Payment Instruction” is defined as any instrument, authorization or order in any form, including by electronic means, to effect a payment by a person to a participant in a payment system or from one participant in such a system to another participant in that system.

The payment instruction can be communicated either manually i.e. through an instrument like a cheque ,draft , payment order etc or through electronic means, so that a payment can be made by either a person to the participant in such a system or between two participants.

Q8. What is a “Settlement”?

Ans. “Settlement” means the settlement of payment instructions received and these include settlement of securities, foreign exchange or derivatives or other transactions.

Settlement can take place either on a net basis or on a gross basis. Both netting and gross settlement system are defined under the Act.

Q9. What is a “Payment System” under the PSS Act, 2007?

Ans. Section 2(1) (i) of the PSS Act 2007 defines a payment system to mean a system that enables payment to be effected between a payer and a beneficiary, involving clearing, payment or settlement service or all of them, but does not include a stock exchange (Section 34 of the PSS Act 2007 states that its provisions will not apply to stock exchanges or clearing corporations set up under stock exchanges). It is further stated by way of an explanation that a “payment system” includes the systems enabling credit card operations, debit card operations, smart card operations, money transfer operations or similar operations.

All systems (except stock exchanges and clearing corporations set up under stock exchanges) carrying out either clearing or settlement or payment operations or all of them are regarded as payment systems. All entities operating such systems will be known as system providers. Also all entities operating money transfer systems or card payment systems or similar systems fall within the definition of a system provider. To decide whether a particular entity operates the payment system, it must perform either the clearing or settlement or payment function or all of them.

Q10. Are entities operating a payment system or intending to operate a payment system required to get a license, approval or authorization for the purpose?

Ans. In terms of Section 4 of the PSS Act, 2007 no person other than the Reserve Bank can operate or commence a payment system unless authorized by the Reserve Bank. Any person desirous of commencing or operating a payment system needs to apply for authorization under the PSS Act, 2007(Section 5).

The application for authorization has to be made as per Form A under Regulation 3(2) of the Payment and Settlement Systems Regulations, 2008. The application is required to be duly filled up and submitted with the stipulated documents to the Reserve Bank.

All entities operating payment systems or desirous of setting up such systems are required to apply for authorization under the Act. Any unauthorized operation of a payment system would be an offence under the PSS Act, 2007 and accordingly liable for penal action under that Act.

Q 11. Is there any application fee to be submitted along with the application for authorization?

Ans. A sum of Rs 10,000/- is required to be submitted as application fee, which can be submitted by cash or cheque or payment order or demand draft or electronic fund transfer in favour of the Reserve Bank along with the application for authorisation.

Q12. What are the factors which the Reserve Bank will consider while deciding on an application submitted for authorization?

Ans. The Reserve Bank will consider factors like the need for the proposed payment system, the technical standards and design of proposed system, the security procedures and terms and conditions of operation of the proposed system, the procedure for netting of payment instructions, risk management processes, financial status of the applicant, experience of management and integrity of applicant, consumer interests, monetary and credit policies and other relevant factors while deciding on an application for authorization for commencing or operating a payment system (Section 7 of PSS Act, 2007).

The Reserve Bank will endeavour to dispose of all applications received for authorization within six months from the date of their receipt.

Q13. Can the Reserve Bank refuse to grant authorization to commence or operate a payment system?

Ans. Yes, the Reserve Bank can refuse to grant authorization under the PSS Act, 2007. However, the Reserve Bank has to give a written notice to such an applicant giving the reasons for refusal and also a reasonable opportunity of being heard {Section7 (3) of the PSS Act 2007}.

Q14. Can the Reserve Bank revoke authorization granted under the PSS Act 2007?

Yes, the Reserve Bank is empowered to revoke the authorization granted by it, if the system provider contravenes any provisions of the Act or Regulations, fails to comply with its orders/ directions or violates the terms and conditions under which the authorization was granted to it (Section 8 of PSS Act 2007).

Q15. Is there any appellate authority to whom an aggrieved applicant whose application for authorization is refused or a system provider whose authorization is revoked, can appeal?

Ans. The aggrieved applicant or aggrieved system provider can appeal to the Central Government within 30 days from the date on which the order of refusal or revocation is conveyed to him (Section 9 of PSS Act, 2007).

Q16. Can the Reserve Bank collect any authorisation fees and direct the applicant to furnish a security deposit?

Ans. Yes, Section 7 of the PSS Act, 2007 empowers the Reserve Bank to collect authorization fees while granting authorization. It can also call upon the applicant to furnish a security deposit for the proper conduct of the payment system. The quantum of authorization fees and security deposit can be decided by the Reserve Bank.

Q17. Does the Reserve Bank have powers to lay down any standards?

Ans. The Reserve Bank is empowered to prescribe the format of payment instructions, size and shape of instructions, timings to be maintained by payment systems, manner of funds transfer criteria for membership including continuation, termination and rejection of membership, terms and conditions for participation in the payment system etc (Section 10 of PSS Act, 2007).

Q18. Whether the Reserve Bank can call for returns, information etc., from the system provider with regard to the operation of the payment system?

Ans. The Reserve Bank is empowered to call for from the system provider returns, documents and other information relating to the operation of the payment system. The system provider and all system participants are required to provide Reserve Bank access to any information relating to the operation of the payment system (Section 12 and 13 of PSS Act, 2007).

Q19. Can the Reserve Bank inspect the premises of the system provider?

Ans. The Reserve Bank, in order to ensure compliance of the provisions of the PSS Act, 2007 and the Regulations made thereunder, can depute an officer authorized by it to enter any premises where a payment system is being operated, inspect any equipment, including any computer system or document, and call upon any employee of the system provider or participant to provide any document or information as required by it (Section 14 of PSS Act, 2007).

Q20. Can the Reserve Bank issue directions to the system provider?

Ans. The Reserve Bank is authorized to issue directions to a payment system or system participant to cease or desist from engaging in any act, omission or course of conduct or direct it to perform any acts as well as issue general directions in the interests of the smooth operation of the payment system (Section 17 and 18 of the PSS Act, 2007).

Q21. Does the PSS Act 2007 deal with netting and settlement finality?

Ans. The PSS Act 2007 defines “netting” and legally recognizes settlement finality. It states that a settlement, whether gross or net, will be final and irrevocable as soon as the money, securities, foreign exchange or derivatives or other transactions payable as a result of such settlement is determined, whether or not such money, securities or foreign exchange or other transactions is actually paid. In case a system participant is declared insolvent, or is dissolved or is wound up, no other law can affect any settlement which has become final and irrevocable and the right of the system provider to appropriate the collaterals contributed by the system participants towards settlement or other obligations.

This Act also legally recognizes the loss allocation among system participants and payment system, where the rules provide for this mechanism

Q22. What are the duties of a system provider under the PSS Act, 2007 ?

Ans. The PSS Act, 2007 lays down the duties of the system provider. The system provider is required to operate the payment system in accordance with the provisions of the Act and the Regulations, the terms and conditions of authorization and the directions given by the Reserve Bank from time to time. The system provider is also required to act in accordance with the contract governing the relationship among the system participants and the rules and regulations which deal with the operation of the payment system. The Act requires the system provider to disclose the terms and conditions including the charges, limitations of liability etc., under the payment system to the system participants. The Act also requires the system provider to provide copies of all the rules and regulations governing the operation of the payment system and other relevant documents to the system participants. The system provider is required to keep the documents and its contents, provided to it by the system participants, as confidential and is prohibited from disclosing the same, except in accordance with the provisions of law.(Sections 20 to 22 of the Act)

Q23. What is the mechanism for settlement of disputes under the PSS Act, 2007?

Ans. The Act lays down an elaborate mechanism for settlement of disputes between system participants in a payment system, between system participant and system provider and between system providers. The Act requires the system provider to make provision in its rules or regulations for creation of a panel to decide disputes between system participants. Where any system participant is dissatisfied with the decision of the panel, or where disputes arises between system participant and system provider or between system providers, such disputes are required to be referred to the Reserve Bank for adjudication, whose decision shall be final and binding on the parties. In cases where the Reserve Bank, in its capacity either as a system participant or system provider, is itself a party to the dispute, then there is a provision for referring such cases to the Central Government for adjudication. (Section 24 of Act)

Q24. What are the consequences of dishonor of electronic fund transfer under the PSS Act, 2007?

Ans. Under the PSS Act, 2007, dishonor of an electronic fund transfer instruction due to insufficiency of funds in the account etc., is an offence punishable with imprisonment or with fine or both, similar to the dishonor of a cheque under the Negotiable Instruments Act 1881. Subject to complying with the procedures laid down under the PSS Act, 2007, criminal prosecution of defaulter can be initiated in such cases. This provision was introduced to discourage dishonour of electronic payment instructions. (Section 25 of the Act)

Q25. Are there any penalties or punitive action laid down under the PSS Act,2007?

Ans. Under the PSS Act, 2007, operating a payment system without authorization, failure to comply with the terms of authorization, failure to produce statements, returns information or documents or providing false statement or information, disclosing prohibited information, non-compliance of directions of Reserve Bank violations of any of the provisions of the Act , Regulations, order, directions etc., are offences punishable for which Reserve Bank can initiate criminal prosecution. Reserve Bank is also empowered to impose fine for certain contraventions under the Act. (Sections 26 and 30 of the PSS Act, 2007).

Senior Citizens Savings Scheme, 2004 - Acceptance of Form 15-G from the Nominees

RBI/2008-09/493
Ref. No. DGBA.CDD.H-10566/15.15.001/2008-09

June 5, 2009

The General Manager
Government Accounts / Business Department
State Bank of India / State Bank of Indore/State Bank of Patiala
State Bank of Bikaner & Jaipur /State Bank of Travancore
State Bank of Hyderabad / State Bank of Mysore /Allahabad Bank
Bank of Baroda / Bank of India / Bank of Maharashtra
Canara Bank/Central Bank of India /Corporation Bank Dena Bank / Indian Bank
Indian Overseas Bank / Punjab National Bank / Syndicate Bank / UCO Bank
Union Bank of India / United Bank of India / ICICI Bank Ltd / Vijaya Bank/IDBI Ltd

Dear Sir,

Senior Citizens Savings Scheme, 2004 - Acceptance of Form 15-G from the Nominees

As you are aware, investors under Senior Citizens Savings Scheme, 2004 (SCSS) are eligible to file Form 15-G and 15-H to claim exemption from TDS on the interest payable on the deposits under the said scheme.

2. Central Board of Direct Taxes have now clarified, vide their Office Memorandum F.No.275/36/2009-IT(B) dated May 14, 2009, that nominee of the investors of SCSS can also produce 15-G form (declaration of non-deduction of tax from the amount of interest payable) at the time of payment after the death of the depositor.

3. The contents of this circular may be brought to the notice of the designated branches of your bank for information and compliance.

4. Please acknowledge receipt.

Yours faithfully,

(Imtiyaz Ahmad)
Assistant General Manager

Senior Citizens Savings Scheme, 2004 - Acceptance of Form 15-G from the Nominees

RBI/2008-09/493
Ref. No. DGBA.CDD.H-10566/15.15.001/2008-09

June 5, 2009

The General Manager
Government Accounts / Business Department
State Bank of India / State Bank of Indore/State Bank of Patiala
State Bank of Bikaner & Jaipur /State Bank of Travancore
State Bank of Hyderabad / State Bank of Mysore /Allahabad Bank
Bank of Baroda / Bank of India / Bank of Maharashtra
Canara Bank/Central Bank of India /Corporation Bank Dena Bank / Indian Bank
Indian Overseas Bank / Punjab National Bank / Syndicate Bank / UCO Bank
Union Bank of India / United Bank of India / ICICI Bank Ltd / Vijaya Bank/IDBI Ltd

Dear Sir,

Senior Citizens Savings Scheme, 2004 - Acceptance of Form 15-G from the Nominees

As you are aware, investors under Senior Citizens Savings Scheme, 2004 (SCSS) are eligible to file Form 15-G and 15-H to claim exemption from TDS on the interest payable on the deposits under the said scheme.

2. Central Board of Direct Taxes have now clarified, vide their Office Memorandum F.No.275/36/2009-IT(B) dated May 14, 2009, that nominee of the investors of SCSS can also produce 15-G form (declaration of non-deduction of tax from the amount of interest payable) at the time of payment after the death of the depositor.

3. The contents of this circular may be brought to the notice of the designated branches of your bank for information and compliance.

4. Please acknowledge receipt.

Yours faithfully,

(Imtiyaz Ahmad)
Assistant General Manager

Information Technology and Banking – A Continuing Agenda

(Keynote Address delivered by Dr. D. Subbarao, Governor, Reserve Bank of India on May 18, 2009 at the Banking Technology Awards 2008 of the Institute for Development & Research in Banking Technology, Hyderabad.)

I am delighted to be here today to celebrate outstanding Information Technology achievements in the Indian banking sector. We are all well aware of the significant contributions that Indian IT professionals have made in the world arena. In fact, when the phrase “Indian talent” is used, it is often meant as a synonym for IT excellence.

IT in the Indian Financial Sector – the Beginnings

2. The use of technology in expanding banking has been a key focus area of the Reserve Bank. Technological innovation not only enables a broader reach for consumer banking and financial services, but also enhances its capacity for continued and inclusive growth.

3. There are several factors attributed to India’s high growth in the recent period - improved productivity, growing entrepreneurial spirit, and higher savings, to name the most important. But one factor usually goes unacknowledged – that is financial intermediation. I believe improvement in the quantum and quality of financial intermediation ranks along with other factors that I mentioned above as a key growth driver. And one of the factors that drove the improvement in the quantum and quality of financial intermediation is more wide spread and more efficient use of IT.

4. Implementing IT in an Indian banking system dominated by government-owned banks has not been easy. In his book ‘Imagining India – Ideas for the New Century’, Nandan Nilekani makes interesting references to this issue. He writes about his travels around the country in the early 1990s, speaking about the role of, what was then called in typical Indian English as ‘electronification’ in Indian banking. After one such presentation, Nandan writes, the chairman of a bank advised him to stop preaching, warning him that (quote), ‘The unions will gherao you in your house!’ (unquote) Nandan goes on to describe another presentation before an incredibly hostile audience, who dismissed out of hand all his ideas and suggestions. But at the end of the presentation, the union leader told him privately that both his sons were working for Microsoft on software solutions. I am told that during the initial days of IT implementation at the Reserve Bank, systems had to be smuggled into the office when ‘the world was sleeping’. Happily for us, IT implementation no longer faces opposition from any quarter. Indeed, everyone welcomes it. Even the trade unions have become extensive users of technology.

5. On this occasion, as we honor achievement in technology implementation, I want to share a few thoughts on the role of IT in the Indian financial sector.

IT in the Indian Financial Sector – Status Today

6. First, let me briefly review the current status of IT in the financial sector. More than most other industries, banks and financial institutions rely on gathering, processing, analyzing and providing information in order to meet the needs of customers. Given the importance of information in banking, it is not surprising that banks were among the earliest adopters of automated information processing technology. The visible benefits of IT in day-to-day banking in India are quite well known. There’s ‘Anywhere Banking’ through Core Banking Systems, ‘Anytime Banking’ through new, 24/7/365 delivery channels such as Automated Teller Machines (ATMs), and Net and Mobile Banking. In addition, IT has enabled the efficient, accurate and timely management of the increased transaction volume that comes with a larger customer base. It has also facilitated the movement from class banking to mass banking.

7. The past few years saw us marking some major milestones in the Indian payment and settlement systems. The introduction of the Real Time Gross Settlement (RTGS) System has resulted in compliance with the Basle Core Principles for Systemically Important Payment Systems of the Bank for International Settlements. It also has paved the way for risk-free, credit push-based fund transfers settled on a real-time basis and in central bank money. The facility for inter-bank funds settlement through RTGS is today available across more than 55,000 bank branches, in more than 2500 regional centers across the country – a coverage span perhaps not seen anywhere else in the world.

8. Now, let’s compare today’s situation with what was in place in 2004, when only 4,800 branches offered RTGS. The rapid acceptance of RTGS by users can be measured by the daily transaction volume: today, we settle close to 100,000 transactions a day in the RTGS mode, up from just about 6000 transactions a day in 2004-05. In fact, quick, safe and efficient electronic movement of funds from virtually any part of the country to any other location is now almost guaranteed. This is enabled by the coordination with the National Electronic Funds transfer (NEFT) System and the National Electronic Clearing Service (NECS). In 2005, RBI was clearing about 2.70 lakh NEFT transactions a month. This number has jumped exponentially to nearly 40 lakh a month today. The establishment of the legal framework for all of this – in the form of the Payment and Settlement Systems Act, 2007 – provides the requisite supportive structure for these systems.

9. I also want to highlight here the extent of customer migration to electronic payments in India. From less than half a percent of transactions in the electronic mode in 2001, today we process close to about 30 crore transactions per year in the electronic mode. The same holds true for RBI’s recent initiative away from High Value Clearing to electronic modes – a move aimed at creating a safer, secure and credit-push based funds transfer route that has gained considerable traction.

10. We have also seen developments in the communication network and messaging system in India. This institute, the Institute for Development and Research in Banking Technology (IDRBT), set up by the RBI in 1997, implemented the INdianFInancialNETwork – the INFINET – a ‘one-of-a-kind’ initiative for the banking sector aimed at sharing expensive IT resources so as to achieve economies of scale. One of IDRBT’s notable achievements has been the implementation of Public Key Infrastructure (PKI) - based electronic data transfer with very high security levels. The Institute also developed a messaging standard called Structured Financial Messaging System (SFMS) with security features superior even to SWIFT. Today INFINET has migrated to the latest MPLS technology in an effort to provide a state-of-the-art network.

11. IDRBT also set up the National Financial Switch for interconnecting ATMs. It’s interesting to note that at the turn of the century, there were only about 4000 ATMs in all of India, and today there are more than ten times this number, and all of them interconnected. These changes have enabled RBI to take two major steps in this area in recent months. First, ATM card holders can use any ATM in the country irrespective of which bank issued them the card; and second, use of ATMs has become free of charge since April 1, 2009. So, now a customer can go to any ATM and withdraw money free of charge regardless of which ATM is being used and which bank issued the card.

12. IDRBT also spearheaded research in the field of banking technology and has been the centre for excellence in training in this area. Over the years, the role of the institute has extended beyond research to providing various services to the banking community. Now, a committee headed by Dr C Rangarajan is looking into redefining IDRBT’s role. Recommendations from this committee are anticipated soon.

13. Given the growing importance of IT in the banking sector, it is appropriate that the IDRBT provides incentives to the IT-based operations of commercial banks by evaluating their IT capabilities and motivating them to push for improvements by instituting these awards, which are going to be presented today.

IT in the Financial Sector: the Continuing Agenda

14. Information technologies and the innovations they enable are strategic tools for enhancing the value of customer relationship. They reduce the costs of financial transactions, improve the allocation of financial resources, and increase the competitiveness and efficiency of financial institutions.

15. Even as the achievements of IT in the banking sector are impressive, we have a big agenda on the way forward. Current financial sector leaders still need to take greater advantage of new technologies and information-based systems and expand the coverage of the Indian banking and financial system.

16. What do I mean by this? For instance, the potential of IT in extending banking services to under-served markets in rural and semi-urban areas is enormous. The use of Smart Card technology, mobile ATMs, coverage of post offices under electronic payments networks in out-of-reach areas – all could play significant roles in providing financial services to more people and thereby serve financial inclusion.

17. There is tremendous potential for the business growth of financial institutions on the one hand and the inclusive growth of India on the other. We have already seen banks using innovative approaches such as solar power- and mobile technology-based connectivity for branches. A variety of options are available which enable extended reach of such services. I urge banks to identify the technological model that is right for them. We have already seen the positive benefits that come from extending the reach of banking services through pilot projects in Andhra Pradesh and parts of the North East. The Reserve Bank also has announced its intention to expand the reach of banking in the North East even further by funding the cost of connectivity using VSAT technology. IBA is working on the details of this effort.

18. India is experiencing an explosion in the use of mobile communication technology. And this is a development that the financial sector can exploit. Mobile phone users belong to all strata of society, spread across metropolitan centres, towns and villages. Banks can take advantage of this expanded reach of telecom if they provide services through this medium. The phone’s integrated chip can function as a multi-application smart card, thus making banking services available to virtually every mobile phone owner. This holds substantial promise as the delivery vehicle of the future: there is huge potential and an exciting opportunity. However, the expansion of such capabilities must be accompanied by a minimum level of essential security features and continued compliance with established covenants relating to privacy of customer transactions.

19. The potential of IT for the near future also includes:

• Enabling differentiation in customer service;

• Facilitating Customer Relationship Management (CRM) based on available information, which can be stored and retrieved from data warehouses;

• Improving asset-liability management for banks, which has a direct bearing on the profits of banks;

• Enhancing compliance with anti-money laundering regulations; and

• Complying with Basel II norms

Implementation Challenges

20. New technologies set off a process of change. That, in turn, poses its own set of challenges to institutions as well as to consumers. IT is not yet a very comfortable choice for millions. Therefore, if we are to encourage IT proliferation, we must facilitate a change in customer mindsets and attitudes. Consumer awareness is a major challenge. It must be addressed as a whole. As automation increases and as products come with ever more technology based components, bank customers must understand up front the pros and cons of various products. Banks have to share the responsibility of providing this education. It is not just about the mere listing of all the terms and conditions on the agreement which, if we are being honest, rarely get the attention or focus that they deserve. People should read this information, but do they? Beyond that, people should understand all that is written in technical and legal language, but can they? Real education will lead to breakthroughs in understanding. More consumers would be more eager and willing to move towards use of technologically-enhanced products. In turn, this will act as a multiplier, with a positive impact on bank performance.

21. Banks also must pass on the benefits of lower costs from technology-based products and services to their customers. I was surprised to note that transfer of funds from one branch of a bank to another, both under the Core Banking System, entailed a service charge for the remitting customer. It does not make sense that the charge for such funds movement within a bank is much more than for inter-bank funds transfers! Let me be candid. The entire institution of banking is built on consumer trust. By imposing charges not commensurate with the cost of services provided, we risk losing this fundamental trust that underlies a banking relationship.

22. No doubt deployment of IT offers ample rewards. But these rewards can be claimed only by organizations which successfully address the alignment challenge. Alignment of IT and business, alignment of IT and HR and alignment of IT and organizational structure. These are all critical to derive true value. Working in silos deprives several benefits. All this should culminate in IT governance as an important component of corporate governance.

23. Security in an IT-based transaction processing environment is also critical. Adequate security controls must be in place. This includes the validation of transactions using the maker-checker concept, transmission of electronic messages over a network in encrypted form, due authentication by means of providing for digital signatures and storage of electronic records in conformity with the provisions of the IT Act, 2000 and amendment Act 2008. There is also the human element, and this is an issue as well: studies from around the world show that a significant proportion of IT frauds is the work of insiders. This underscores the need for ensuring that proper controls are in place and that they work properly.

24. Another serious challenge, particularly for public sector banks, is capacity building and talent retention. The success of IT implementation is ultimately manifested at the counters of the bank or at the ATMs and not in the data centres. If IT implementation in the early stages faced challenges from the trade unions today banks face different kinds of challenges. If a customer is turned back on the last day of tax payment (any facility will not change this habit!) or a cheque gets returned because CBS can not be accessed at the branch, the entire edifice of efficiency collapses in the eyes of the common man! Banks must make sure to avoid such interfaces which erode trust and confidence.

Conclusion

25. Let me now conclude. We know that investments in newer technologies must be made to modernize existing operations, to face competitive challenges, and to meet customer expectations. Some of these investments will also be made with the goal of achieving cost savings, energy efficiency and environmental friendliness. In the years ahead, the ability of banks to harness new technologies to meet the demands of households and businesses will be tested. I am confident that banks and other financial institutions will meet these challenges head on, continue to find new and better ways to put technology to their and their customers’ best use, and that they will manage the technology and business risks associated with these investments.

26. The identification and recognition of technology leaders in the form of these Technology Awards underscores our ability to excel in our respective fields. The awards of today are not a culmination; instead they mark another milestone in our journey towards an efficient, effective and, may I add, sensitive and user friendly financial system.

27. My congratulations to all the award winners today.