Payment and settlement system means the financial infrastructure that carries out payment and settlement between banks and other institutions. Since banks are the medium through which payments are made, the payment and settlement system manage the interbank transactions and settles them. The payment and settlement system comprise of several arrangements like Real Time Gross Settlement, National Electronic Fund Transfer etc. and is designed and managed by the RBI.
Payment and settlement systems are the backbone of the entire economic activities. In a financial system, individuals and business entities makes their payments to their counter parties through banks. Now, the payment system is moving from paper based to digital payments. Digital payment infrastructure in the country is growing fast especially after the establishment of NPCI and the demonetisation induced digitalization drive. Hyper activity is going on in the digital payment segment and the RBI is regulating the activities with sophistication.
Central banks including the RBI are having clearing houses to clear checks and drafts as well as settling the cash transactions of different banks on an interbank basis. Central banks’ service as a payment and settlement facilitating institution is not over here. Now a day the RBI is using the opportunity of technology to make interbank payment and settlement more efficient and quick. Various facilities like Core Banking Solution, RTGS, NEFT, Online banking, Aadhaar based payment systems, UPI, BHIM, Prepaid Payments Instruments etc. are used for payment facilitation. The government has enacted a specific legislation – Payment and Settlement System Act 2007 for supporting RBI. The National Electronic Transfer system was introduced in 2005.
