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The following points highlight the eleven main initiatives made by the Reserve Bank of India (RBI) to reform the banking sector in India. Some of the initiatives are: 1. ATMs 2. Debit Card 3. Credit Card 4. Implementation of Centralised Funds Management System 5. Certification and Digital Signatures 6. Committee on Payment Systems 7. Multi-application Smart Cards and Others.
Initiative # 1. ATMs:
Automated Teller Machines (ATMs) have paved the way for introducing an alternative banking channel which facilitate low cost banking transactions. In order to avoid the huge crowed at the bank branches, ATMs provided easy and faster facility for with-drawing cash and deposit of cheques through the use of ATM cards provided by the banks to its customers.
In recent times, public sector banks in India are also opening their ATM chains following the foot-steps of private banks.
Initiative # 2. Debit Card:
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The debit card service is meant for withdrawals against the balance already available in the designated account. It is the card Holder’s obligation to maintain sufficient balance in the designated account to meet withdrawals and service charges.
ATM cards are also gradually becoming popular as debit cards which are mostly used for purchase of goods and services. Such cards are known as ATM-cum-Debit card. For the security of the customer, the card holder is initially allotted a computer generated 4 digit PIN (Personal Identification Number).
Debit card can also be used for shopping at any of the VISA or MAESTRO merchant establishments (MEs) in India. MEs shall include shops, stores, restaurants, hotels and commercial establishments etc. These merchant establishments (MEs) must have point of sale (POS) electronic terminals at which the customer can use his debit card through the PIN to make purchases by debiting his account with the bank.
At the time of purchase, the customer must be physically present along with his debit card. On presentation of the debit card, the card will be swipe by the merchant on an Electronic Data Capture Terminal for authorization. After a successful authorization, a hold for the transacted amount will be placed on the customer’s, account. Finally, the account will subsequently be debited for the transacted amount.
Initiative # 3. Credit Card:
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Internet banking provides the customer the facility credit card to its customers. With the help of this Credit Card, the customer can not only pay their credit card bills online but also get a loan on their cards. Not just this, the customer can also apply for an additional card, request a credit line increase and in case the card is lost one can report lost card online.
Initiative # 4. Implementation of Centralised Funds Management System:
The centralised funds management system (CFMS) provides for a centralised viewing of balance positions of the account holders across different accounts maintained at various locations of RBI.
While the first phase of the system covering the centralised funds enquiry system (CFES) has been made available to the users, the second phase comprising the centralised funds transfer system (CFTS) was made available by the middle of 2003. So far, 54 bank have implemented the system at their treasuries/funds management branches.
Initiative # 5. Certification and Digital Signatures:
The mid-term Review of October 2002 indicated the need for information security on the network and the use of public key infrastructure (PKI) by banks. The Controller of Certifying Authorities, Government of India, have approved the Institute for Development and Research in Banking Technology (IDRBT) as a Certification Authority (CA) for digital signatures.
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Consequently, the process of setting up of registration authorities (RA) under the CA has commenced at various banks. In addition to the negotiated dealing system (NDS), the electronic clearing service (ECS) and electronic funds transfer (EFT) are also being enhanced in terms of security by means of implementation of PKI and digital signatures using the facilities offered by the CA.
Initiative # 6. Committee on Payment Systems:
In order to examine the entire gamut of the process of reforms in payment and settlement systems which would be culminating with the real time gross settlement (RTGS) system, a Committee on Payment Systems. (Chairman: Dr. R.H. Patil) was set up in 2002.
The Committee, after examining the various aspects relating to payment and settlement systems, submitted its report in September 2002 along with a draft Payment Systems Bill.
The draft Bill provides, inter alia, a legal basis for netting, apart from empowering RBI to have regulatory and oversight powers over payment and settlement systems of the country. The report of the Committee was put on the RBI website for wider dissemination. The draft Bill has been forwarded to the Government.
Initiative # 7. Multi-Application Smart Cards:
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Recognising the need for technology based payment products and the growing importance of smart card based payment flows, a pilot project for multi-application smart cards in conjunction with a few banks and vendors, under the aegis of the Ministry of Communications and Information Technology, Government of India, has been initiated.
The project is aimed at the formulation of standards for multi-application smart cards on the basis of inter-operable systems and technological components of the entire system.
Initiative # 8. Special Electronic Funds Transfer (EFT):
As indicated in the mid-term Review of October 2002, national EFT (NEFT) is being introduced using the backbone of the structured financial messaging system (SFMS) of the IDRBT. NEFT would provide for movement of electronic transfer of funds in a safe, secure and quick manner across branches of any bank to any other bank through a central gateway of each bank, with the inter-bank settlement being effected in the books of account of banks maintained at RBI.
Since this scheme requires connectivity across a large number of branches at many cities, a special EFT (SEFT) was introduced in April 2003 covering about 3000 branches in 500 cities. This has facilitated same day transfer of funds across accounts of constituents at all these branches.
Initiative # 9. Electronic, Money Transfer (EMT):
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Electronic money Transfer is a simple online system developed for online transfer of money from one account to another account at same or different destination within a short time or maximum within a day.
Initiative # 10. National Settlement System (NSS):
The clearing and settlement activities are dispersed through 1,047 clearing houses managed by RBI, the State Bank of India and its associates, public sector banks and other institutions. In order to facilitate banks to have better control over their funds, it is proposed to introduce national settlement system (NSS) in phased manner.
Initiative # 11. Real Time Gross Settlement System (RTGS):
As indicated in the mid-term Review of October, 2002, development of the various software modules for the RTGS system is in progress. The initial set of modules was delivered by June 2003 for members to conduct tests and familiarization exercises. The live run of RTGS was started by the end of 2003.
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