and settlement systems play a vital role in the efficient functioning of the financial
system. The Reserve Bank, therefore, continued to strengthen the institutional
framework for payment and settlement systems during 2005-06. The ‘Payment
and Settlement Systems Vision Document (2005-08)’ was released in May 2005
laying down a road-map for the medium-term. The Reserve Bank focused on promoting
electronic modes of funds transfer during the year with a view to bringing about
efficiency in the retail and large value payment systems. The National Electronic
Funds Transfer (NEFT) system for catering to retail payment requirements was operationalised
in November 2005, a month ahead of the target. A noteworthy event in the payment
and settlement systems is the growing popularity of the Real Time Gross Settlement
(RTGS) system which enabled the discontinuation of the paper based inter-bank
clearing during 2005-06.
VIII.2 The role played by information technology
(IT) in the financial sector is considerable. The banking sector, in particular,
has been an extensive user of IT for improving efficiency and customer service
with the introduction of new technology oriented delivery channels. The Reserve
Bank, therefore, published the ‘Financial Sector Technology Vision Document’
in July 2005 for facilitating smooth and orderly technological upgradation of
the financial sector.
VIII.3 This Chapter profiles the initiatives taken
by the Reserve Bank during 2005-06 in its endeavour to provide a safe, secure,
efficient and sound payment and settlement systems. This Chapter also details
the initiatives by the Reserve Bank on the use of IT within the Reserve Bank as
well as in the banking sector.
Board for Regulation and Supervision
of Payment and Settlement Systems
VIII.4 The Board for Regulation
and Supervision of Payment and Settlement Systems (BPSS) has been constituted
as a Committee of the Central Board of the Reserve Bank since March 2005. The
Board lays down policies relating to the regulation and supervision of all types
of payment and settlement systems, sets standards for existing and future systems,
authorises the payment and settlement systems, determines criteria for membership
to these systems, including continuation, termination and rejection of membership.
The Department of Payment and Settlement Systems provides secretarial assistance
to the BPSS. The BPSS, since its constitution on March 7, 2005, has met on five
occasions till June 2006. The BPSS provided policy inputs and direction relating
• Vision document on payment and settlement
system for the period 2005-08 which was released in May 2005.
Draft bill relating to payment and settlement systems.
Need for separate EFT Regulations to be framed under the Reserve Bank of India
Act, 1934. The EFT Regulations drafted on approval of the BPSS and after the approval
by the Central Board of the Reserve Bank were forwarded to the Gover nment of
India for approval for notification.
of operational efficiency for MICR Cheque Processing Centres.
Best Practices in Payment Systems – a comparative study of India’s
position vis-à-vis a few developed countries.
Conducting a comparative study of the Indian RTGS system with those of other countries
to explore the feasibility of implementing the best features available in other
RTGS systems in India.
• Leapfrogging from
cash/paper based payment systems to electronic payment systems.
Use of electronic modes for making payments.
VIII.5 The Reserve Bank
plays a proactive role in facilitating the payment systems initiatives of banks
in providing various services like internet banking, mobile banking as also other
innovative services to their customers (Box VIII.1).
While permitting such initiatives by banks, the Reserve Bank prescribes minimum
safeguards which the banks should put in place before implementing such channels
Mobile Payments – Retail Small Value Payments
usage of mobile phones has encouraged banks and non-banks to develop new payment
services for their customers. Mobile payments are defined by the channel through
which the payment instruction is entered into the payment system. Mobile payments
cater largely to micro-payments segment and can be made through voice access,
short messaging service (SMS) or wireless application protocol (WAP). WAP technology
enables a mobile phone holder registered with this service to access his/her bank
website for banking services. Some products use phones as an access channel to
initiate and authenticate transactions from existing payment means such as bank
accounts or payment cards. Another arrangement allows customers to pay using the
prepaid value stored on the mobile phone or pay ex post, where payments
for goods/ services are placed as additional items on the customer’s phone
bill. Authentication of payments is done by keying in a unique PIN (personal identification
The number of mobile phone users in India (over 100 million)
exceeds the number of card holders and their network covers a very large area.
Therefore, a payment mechanism using mobile phones has turned out to be a convenient
mode for small value transactions. Accordingly, banks in India are tapping the
potential of this mode of payment and promoting this as a delivery channel for
small value retail payments. The facilities provided by banks through this mode
include: enquires about bank account; alerts on debits / credit to the account
above the limit set; alerts on cheque bounce; information on balance above / below
limit; and reminders for payment due date for credit card.
VIII.6 The overall turnover in the various payment and
settlement systems rose by 35 per cent during 2005-06 on top of 67 per cent during
2004-05. The turnover in respect of RTGS transactions increased sharply.
In terms of value, turnover in RTGS now constitutes the largest component, followed
by foreign exchange clearing and high value clearing among the Systemically Important
Payment Systems (SIPS) (Table 8.1).
8.1: Payment System Indicators: Annual Turnover
Payment Systems (SIPS)
Total SIPS (1 to 5)
Total Others (6 to
Grand Total (1 to 9)
1. Paper-based inter-bank clearing was closed at Mumbai with effect from November
1, 2004 and subsequently at other centres in phases. By June 2005 it was discontinued
at all the centres. Inter-bank transactions are now settled through RTGS system.
RTGS became operational on March 26, 2004.
2. High value
clearing refers to cheques of Rs.1 lakh and above.
3. Settlement of NDS and
forex clearing is through Clearing Corporation of India Limited (CCIL).
At end-March 2006, the MICR clearing was at 53 centres. Non-MICR clearing refers
to all paper based clearings at the centres where MICR cheque processing centres
have not been set up.
5. Electronic clearings comprise Electronic Clearing
Service (ECS), Electronic Funds Transfer (EFT), Special Electronic Funds Transfer
(SEFT) and National Electronic Funds Transfer (NEFT).
6. Cards include credit
and debit cards.
8.2: Retail Electronic Funds Transfer Systems
Retail Payment Systems
VIII.7 The turnover
in retail payment systems recorded an increase of 13.7 per cent in value during
2005-06. These systems include the conventional cheque clearing system –
the predominant mode for retail payments (both the MICR and Non-MICR clearings).
Retail payments system also include electronic systems, i.e., the Electronic
Clearing Service (ECS-Debit and Credit), EFT, NEFT and card-based systems (credit,
debit and ATM cards) (Table 8.2 and Table
8.3). ECS was available at 44 centres as at end-June 2006. In order to facilitate
electronic modes of payment, banks are providing innovative products to their
customers by developing new products and integrating them with ECS/EFT/NEFT/RTGS
at the back-end for settlement.
VIII.8 In view of the increased popularity
of the card-based payment systems, it is imperative to ensure that such systems
continue to operate in a safe and efficient manner. Accordingly, the Reserve Bank
has issued detailed operational guidelines for banks issuing credit cards based
on the recommendations of the Working Group on the Regulatory Mechanism for Cards.
The guidelines require that the banks/NBFCs issuing credit cards should have a
well documented policy and a Fair Practices Code for credit card operations. The
guidelines, inter alia, require that terms and conditions should be mentioned
clearly; the most impor tant ter ms and conditions should be highlighted; and
interest rates and other charges should be indicated clearly. Guidelines also
lay down the code of conduct for Direct Selling Agents (DSAs)/ Direct Marketing
Agents (DMAs) and provide for protection of customer rights (right to privacy,
customer confidentiality, fair practices in debt collection and redressal of grievances).
Adherence to Know Your Customer (KYC) norms and adequate internal control and
monitoring systems are also stressed in the guidelines.
8.3: Card based Payments
VIII.9 In order to enhance the security features in the
cards, a Working Group on Security Issues in Card Transactions (Chairman: Dr.R.B.
Barman) has been set up to study the (i) status of migration of current magnetic
strip based credit/debit cards to chip based credit/debit cards in India; (ii)
status of migrating all points of sales (POS) and ATMs to accept chip based debit/credit
cards as well; and (iii) issues involved in migration to chip based debit/credit
Paper Based Clearing
VIII.10 Paper-based clearing remains the most important segment of the retail
payment and settlement system. New MICR cheque processing centres (CPCs) started
operations at 10 centres during 2005-06, increasing the total number of centres
to 53. These centres account for about 83 per cent and 85 per cent of the total
cheque volumes and value, respectively. MICR CPCs will be set up at six more centres
by March 2007.
VIII.11 In view of the large volumes of paper-based instruments
processed by the MICR clearing system, setting up of back up centres/arrangements
gains importance. The Reserve Bank operates the MICR CPCs at the four metropolitan
centres; at each of these four metropolitan centres, back up centres have been
set up by the State Bank of India. Banks which have set up MICR CPCs at other
centres have been advised to identify nearby CPCs to operate as back up centres.
Besides, the banks managing the clearing houses have been advised to use magnetic
media based clearing system (MMBCS) as back up for clearing and settlement. In
order to ensure smooth operations of clearing and settlement in case of any eventuality,
banks managing the clearing house have also been advised to work out arrangements
with the second largest bank at the respective centres which should be in a position
to take over the clearing and settlement operations. The presidentship of the
Clearing House has been taken over by the bank managing the CPC at all non-RBI
centres facilitating better coordination between the CPC and the branch where
settlement accounts are located. As a step towards standardisation, the Reserve
Bank had advised banks/Governments that all paper payment instruments should be
in MICR format by March 31, 2006. The date has been extended as some Government
departments are still in the process of exhausting their existing non-MICR cheque
stocks and printing new MICR cheques. Furthermore, as a step towards increasing
the efficiency in the paper-based clearing system at the centres where the volumes
are less and where it is not viable to setup a MICR CPC, banks managing the clearing
houses have been asked to implement the MMBCS system. A plan has been worked out
for computerisation of clearing operations at 40 non-MICR centres with more than
25 member banks. Finally, with a view to maintaining the operational efficiency
of various CPCs as also to have a formal oversight over the MICR CPCs, the Reserve
Bank framed a set of standards known as “The Standards of Operational Efficiency
for MICR Cheque Processing Centres” (Box VIII.2).
Minimum Standards of Operational Efficiency
for MICR Cheque Processing Centres
MICR clearing is an important
constituent of retail payment system and thus the efficient operation of MICR
clearing is very critical to the system. The Reserve Bank has, therefore, developed
“The Standards of Operational Efficiency for MICR Cheque Processing Centres”
with the following objectives: (i) uninterrupted availability of clearing service;
(ii) completion of clearing operations within the available time window; (iii)
minimising clearing differences; (iv) risk mitigation; (v) minimum transaction
costs; and (vi) fully meeting the customers’ expectations. In terms of these
standards, general guidelines to be followed by MICR Cheque Processing Centres
• Each CPC should adopt the Uniform
Regulations and Rules for Bankers’ Clearing House (URRBCH) as the legal/contractual
basis for its functioning. Well-documented operational and procedural guidelines
should also be in place and the staff members should be made familiar with the
• Daily clearing schedules (cheque receipt
timing, processing timing, delivery timing, timing for posting the settlement
of presentation clearing, time of holding the return clearing) should be adhered
to as a matter of routine.
• CPCs should have
working hours during the night to accommodate all the cheques received to be taken
up for processing on the same day. The inward cheques for the drawee banks should
be available for delivery in the early morning of the following day.
• Presentation of cheques by the member banks at the CPC
should be as per requirements of the cheque processing system. Instruments should
be as per MICR specifications.
• CPC should have
a reliable computer system with high degree of security and contingency arrangement
for timely completion of daily processing.
of access to the system, application programmes and clearing database should be
strictly controlled with appropriate security set-up. The system should create
necessary logs and audit trails.
• There should be
a system of reporting clearing differences as well as a mechanism to resolve such
differences within a fixed time-frame.
arising out of clearing settlement to member banks should not be allowed to be
withdrawn/availed of before the return clearing process is completed. Accounting
of presentation clearing and return clearing should be organised on the same day.
• A system of monitoring returns against presentations
and returns against drawing should also be put in place. Banks showing unusually
high percentage of returns may be cautioned about the likelihood of some irregular
practices. In no case, fresh presentation should be permitted in return clearing.
• The recommendations of the Working Group on Monitoring
of Clearing Operations should be fully complied with.
There should be a system of ensuring timely completion of daily settlement in
the event of inability on the part of a member to meet its liability by resorting
to partial unwinding under Rule 11 of the URRBCH.
Instrument-wise clearing data should be made available to the member banks electronically
immediately after the settlement is over, preferably by populating the same in
the CPC’s web-server. This will facilitate Straight-Through-Processing (STP)
at member banks end and quicken the process of coming back for return clearing.
• The CPC should lay down a comprehensive back-up
policy and procedure as well as identify storage sites to ensure business continuity
and uninterrupted access to critical data.
self assessment on the above guidelines should be done every quarter and a report
should be submitted to the Reserve Bank.
CPC should subject itself to periodical internal audit and inspection by the bank
managing the CPC.
The Reserve Bank would conduct oversight visit to the
CPC at least once a year. The Reserve Bank may also organise audit/ inspection
either through its own officers or through auditing firms, if required.
VIII.12 At present, there are about 1,030
clearing houses spread all over the country. The settlement of the net pay/receive
obligations is done in the books of accounts of the settlement bank separately
at each clearing centre. Banks participating in clearing who have net pay obligations
and do not have adequate funds with the settlement bank are often required to
get funds from other places by telegraphic transfer. Similarly, banks who have
large surplus funds have to send out funds to places where there are shortages.
This casts a liquidity burden on the banks as they do not get benefit of excess
funds at one clearing centre to offset the deficit at another. Moreover, moving
funds from one place to another is expensive, cumbersome and results in poor liquidity
management. There was, therefore, an imperative need to settle the positions of
banks in the various clearing houses centrally in the accounts maintained at Mumbai.
Accordingly, a National Settlement System (NSS) is proposed to be set-up. The
NSS would primarily cover 20 large commercially important centres and the Reserve
Bank centres which do not fall under the category of such “Top 20”
centres. The implementation of the NSS would be taken up after the full fledged
RTGS-IAS is implemented.
VIII.13 With a view to further enhancing the efficiency in the existing paper-based
clearing systems, the Cheque Truncation System (CTS) project has been undertaken
in the National Capital Region of Delhi on a pilot basis. The CTS would enable
the realisation of cheques on the same day, thereby improving the operational
efficiency of the clearing process. It would also be a more cost effective mode
of settlement than manual and MICR clearing. The vendor for the project has been
identified. The project is expected to go live in the second half of 2006.
National Electronic Funds Transfer System
The National Electronic Funds Transfer (NEFT) system which uses Structured Financial
Messaging Solution (SFMS) of the Indian Financial Network (INFINET) was operationalised
in November 2005, ahead of the target date of December 2005. The NEFT, a deferred
net settlement funds transfer system, addresses the lacunae which are faced in
the EFT and SEFT system. The use of digital signatures under NEFT provides a legal
basis for EFT under the Information Technology Act, 2000. With the implementation
of the NEFT, the Special EFT system in operation has been discontinued from January
2006. The existing EFT system in operation at the 15 Reserve Bank centres is also
scheduled to be discontinued once NEFT system stabilises. The number of settlements
of NEFT has been gradually increased from 2 settlements a day to 4 settlements
(9:30 am, 10:30 am, 12 noon and 4:00 pm). This has enabled customers to get funds
on a near to real time basis and mitigate risk in a deferred net settlement system.
Real Time Gross Settlement System
VIII.15 The implementation
of Real Time Gross Settlement (RTGS) system has revolutionised the large value
payment system in the country by facilitating faster movement of funds across
accounts. With the stabilisation of the RTGS, the paper based inter-bank clearing
at all the Reserve Bank managed centres was discontinued from June 2005. The RTGS
facility was being provided by 96 banks as at end-June 2006, including the Reserve
Bank, at over 21,916 branches in 2,793 centres in 469 districts. The value of
transactions through RTGS system nearly trebled during 2005-06 (Table
VIII.16 The Integrated Accounting System (IAS) of the Reserve
Bank is being integrated with the RTGS system. The full fledged operation of the
RTGS-IAS system would begin shor tly. The benefits of implementation of RTGS-IAS
• Automated Start-of-Day funding of
the RTGS Settlement Account (i.e., transfer of funds on the basis of
standing instruction from the current account to the settlement account);
• Automated End-of-Day flushing of the RTGS
Settlement Account (i.e., transfer of funds from the settlement account
to the current account to make the settlement account zero);
Message-based Own Account Transfer (OAT) between the RTGS Settlement Account and
the current account in IAS or two current accounts in IAS in Deposit Accounts
Department (DAD) of the Reserve Bank at Mumbai;
Multilateral Net Settlement Batch-Settlement of the Net Clearing Batches such
as MICR, EFT, ECS from NCC, Government securities, foreign exchange, CBLO and
NFS-ATM from CCIL and the net clearing batches originating from BSE and NSE;
Intra-day Liquidity (IDL) facility including automated request for grant of IDL,
automated reversal of outstanding IDL with incoming credits, and intra-day addition/
withdrawal of un-encumbered securities offered for IDL availment; and
• Gridlock Resolution Mechanism.
8.4: Month-wise RTGS Transactions
in Rupees crore)
Centralised Funds Management System
VIII.17 The funds transfer facility among DADs of the Reserve Bank in four
metropolitan cities, viz., Mumbai, Delhi, Chennai, and Kolkata was operationalised
using CFMS during the year. At present, 27 banks are making use of this facility
for own account transfer of funds across these four DADs. The system was extended
to other Reserve Bank centres, viz., Hyderabad and Bangalore, during
INFORMATION TECHNOLOGY IN
VIII.18 Information technology (IT) has brought
substantial changes in the functioning of organisations the world over in the
last decade. In the Reserve Bank too, the use of IT has become vital and an integral
part of the day to day operations and functions. With IT becoming an important
facilitator, efforts have been made to ensure the smooth implementation of IT
while meeting all user requirements with relative ease.
Implementation in the Reserve Bank
VIII.19 The Reserve Bank
has made concerted efforts in exploiting the potential of IT based on a set of
guiding principles: (i) providing for latest, state-of-the-art systems; (ii) migration
towards centralisation to the maximum extent possible; (iii) conforming to the
generic architecture for the Reserve Bank and ensuring standardisation of systems;
and (iv) providing holistic solutions rather than attempting to provide for individual,
stand alone requirements. These guidelines have been followed with due importance
to safety and security. Furthermore, the implementation of systems has been pursued
using a project based approach with close coordination with the business owners,
and by involving external expertise, wherever required.
efforts were made in 2005-06 towards consolidation of IT within the Reserve Bank.
The year saw the completion of many projects which followed the generic architecture
of ‘Centralised Data Processing with Decentralised Access’. One of
the major activities which got a fillip during the year was the integration of
related processing functions. The year witnessed commencement of parallel runs
using the new IAS for the DAD at Mumbai. This system is tightly coupled with the
RTGS system, thus enabling Straight-Through-Processing (STP) operations between
these components. The system is also being provided with interfaces to operate
with the Centralised PDO system. A new Centralised PAD system is currently being
tested along with the existing system, and will be made fully operational soon;
and the consolidation of this with the IAS would make the systems used for operations
of the Banking Department of the Reserve Bank function in an integrated way.
VIII.21 The Integrated Establishment System (IES) which was tested comprehensively
at all offices has been put to parallel operations at two centres; it will be
made fully operational during the second half of 2006. A new Human Resources Management
System (HRMS) incorporating latest systems will be ready for implementation during
the second half of 2006-07. This system will be integrated with the IES.
VIII.22 In order to bridge the gap in communication across various offices of
the Reserve Bank, video conferencing facility was implemented during the year.
The facility was inaugurated by the Governor by using it for his New Year Address
on January 2, 2006. The system has been initially installed at 14 locations and
has been well received. The system has facilitated regional media to interact
with the Governor and the Deputy Governors on the day of the release of the Annual
Policy Statement/reviews every quarter.
VIII.23 In the recent period,
the focus has been on rationalising the existing approach of distributed processing
capabilities (which necessitated the existence of multiple facilities to house
such systems as also additional manpower for regular updating and maintenance
at high levels) through setting up of the Reserve Bank’s Data Centres (Box
Status of IT in the Reserve Bank
Reflecting the ongoing efforts to increase the use of IT as well as to improve
its efficient use, the usage of IT increased significantly during 2005-06 (Table
Centres of the Reserve Bank
The critical processing requirements
of the Reserve Bank are now being increasingly performed using IT based systems.
As a result, the need for consolidation of the critical systems has gained significance.
Therefore, a state-of-the-art Data Centre housing critical computer systems with
adequate back up Data Centres has been envisaged as under:
• A primary
data centre conforming to the Tier IV Standard of the Uptime Institute (which
is recognised internationally) and having multiple active power and cooling distribution
paths, fault tolerant redundant components and providing very high availability
in an exclusive area;
• An on-city back up data centre to be located
in the same city; and
• An off-city back up data centre located
in a different city.
The Data Centre will house all the critical systems of
the Reserve Bank and shall provide for centralised databases with a decentralised
8.5: Critical IT Implementation Factors in 2005-06
Critical Requirement Factor
Position as at end-March 2005
as at end-March 2006
15% under progress
For all functional
35% under progress
At all locations
30% under progress
all offices and
all users at all locations
all information systems
VIII.25 The smooth functioning
of the Centralised PDO (CPDO) system in the light of migration towards the usage
of centralised IT systems was an important event during the year. The Reserve
Bank’s corporate e-mail system has been functioning smoothly but has been
following the distributed architecture. The migration to a single forest to ensure
efficiency has already commenced. Enhancements to the system to make it easily
accessible through the internet have been provided. The secured website of the
Reserve Bank which facilitates registered users, including Government departments,
to obtain data/information relevant to them has been extended to cover the Central
Database Management System (CDBMSi). Member banks of the clearing houses have
also been allowed to download clearing data through the Reserve Bank website.
VIII.26 In order to track the movement of cases, letters and notings, within
and across departments, an in-house developed Document Management and Inward-Outward
System was made operational during the year. This software has been implemented
by all offices/departments of the Reserve Bank and has been well received. A multi-application
smart card-based access control system for the Reserve Bank staff was also introduced
during the year at the Central Office.
VIII.27 In view of the growing use
of technology within the Reserve Bank, necessary steps have been put in place
for a Business Continuity Plan (BCP) and a disaster recovery mechanism through
technological upgradation. All critical payment systems are operated using mainframe
computer systems, as elsewhere in the world; the potential of such systems is
indicated in Box VIII.4.
Reserve Bank and
VIII.28 Continuing research, development and training
is critical to ensure that the implementation of IT for the financial sector is
in line with the developments in the IT industry. These aspects are being addressed
by the Institute for Development and Research in Banking Technology (IDRBT), an
institution funded by the Reserve Bank. The Institute is a Certifying Authority
under the Information Technology Act, 2000 and is engaged in pioneering research
and networking service functions. During the year, IDRBT commenced operations
relating to the National Financial Switch (NFS). NFS facilitates apex level connectivity
among ATM networks of banks and funds settlement at a central point. The NFS enables
customers of banks connected to it to withdraw cash and information from ATMs
of any of those banks. The NFS has the potential to provide large scale services
to meet the ‘ANY-WHERE-MONEY’ through ‘ANY-BANK-ATM’.
Mainframe Computer Systems
computers are large computer systems used mainly by government institutions and
large companies for mission critical applications. Modern mainframe computer abilities
are not measured by their performance capabilities; instead, their high-quality
internal engineering and proven reliability, high-quality technical support, top-notch
security, and strict backward compatibility for older softwares make them a class
apart from other systems. These machines can be used for non-stop processing operations
for many years without interruption and even facilitate repairs to take place
whilst they continue to be in operation. The robustness and dependability of these
systems are amongst the main reasons for the longevity of this class of computers
and use in applications where down-time would be catastrophic. Terms such as Reliability,
Availability and Serviceability (RAS) have become synonymous with mainframe computer
systems. Nearly all mainframes have the ability to run (or “host”)
multiple operating systems and thereby operate not as a single computer but as
a number of virtual machines. In this role, a single mainframe can replace dozens
or even hundreds of smaller servers, reducing management and administrative costs
while providing greatly improved scalability and reliability. The reliability
is improved because of the hardware redundancy noted above, and the scalability
is achieved because hardware resources can be reallocated among the virtual machines
as needed out of total system capacity. Mainframes can add system capacity in
a non-disruptive, instant, and granular manner which is the need of most businesses
of today. In contrast, most of the relatively smaller processing systems do not
offer levels of security available in mainframe systems. Their total cost of ownership
may be relatively lower, but their total cost per user tends to be far more than
those of the mainframe systems.
Reflecting these factors, mainframe computer
systems are also preferred by most of the central banks for BCP. The European
Central Bank uses four such systems in tandem to take care of business continuity
and disaster recovery; the Federal Reserve System has many such systems. In India
too, the critical payment and settlement system processes are carried out using
mainframe computer systems. These have not only stood the test of time but have
also reinforced the dependability of these systems.
Pre-Implementation Audit of Critical Systems
development and implementation follows a structured approach in most organisations.
In the Reserve Bank too, software implementation follows a well-defined method.
With outsourcing emerging as the common method of procuring software, pre-implementation
audit of critical systems assumes importance. This is generally done after the
systems are tested internally by following a pre-determined plan relating to various
situations and followed by an acceptance test. The major thrust areas of such
a pre-implementation audit are : (i) gaining awareness of the scope of release
management and control; (ii) planning and initiating key activities in the release
and control process; (iii) learning how to integrate activities with change and
configuration management; (iv) defining the release and control quality, policy
and procedures; (v) defining and maintaining procedures, work instructions and
guidelines for the release and control process; (vi) understanding the role of
the release and control manager; (vii) learning about definitive software libraries
and the definitive hardware store; (viii) learning to plan, manage and implement
all releases from request to successful closure; (ix) learning to design, build
and configure all releases; (x) learning to select the best release and control
strategies; (xi) creating key performance indicators (KPIs) for release and control;
(xii) learning how and what to audit through best practice; and (xiii) discovering
service improvement plans for release and control. Such an audit provides more
comfort for users of the systems.
Networks and Network-based IT
VIII.29 In order to provide for increased availability
of telecommunication capabilities, the bandwidth of the inter-city telecommunication
links, which are part of the INFINET, was upgraded during the year. This has resulted
in the existence of 2 mbps links across all the offices of the Reserve Bank, with
the major offices being upgraded to 8 mbps.
VIII.30 The INFINET continues
to perform satisfactorily as a safe and secure network for transmission of financial
messages for member banks, especially for processing the common inter-bank payment
system applications implemented by the Reserve Bank for the use by all member
Information Security Policy
With increased dependence on IT in the Reserve Bank, an information security policy
has been put in place. This policy will form the basis for detailed procedural
indicators. IS Audit of critical systems – such as the PDO-NDS and the Reserve
Bank’s website – was conducted during the year. As a part of effective
corporate governance, the IS audit function is performed not by the Department
which implements the technological system. Thus, for IT systems implemented by
Department of Information Technology (DIT) of the Reserve Bank, IS audit is undertaken
by Inspection Department. Based on the findings, compliance is ensured by the
DIT in conjunction with the business owner department for the respective system.
Plans are on to conduct a pre-implementation IS Audit of the full scale RTGS-IAS
as well (Box VIII.5).
IT for the Financial
VIII.32 The Reserve Bank has been functioning as a catalyst
in ensuring that latest developments in IT which are beneficial to banks are implemented
by them. This process has witnessed substantial benefits. In order to provide
the financial sector a roadmap, the Reserve Bank brought out the Vision Document
outlining the IT plans for the financial sector for the medium term. The Vision
Document elucidates Technology Vision for the financial sector and covers areas
such as: IT regulation and supervision; IT and IDRBT; IT for the financial sector;
and IT for Government related functions. With its Vision Statement of ‘IT
for efficiency and excellence’, the objective is to ‘enable banks
to leverage on IT for better customer service, improved housekeeping and overall
system efficiency’. This document provided a useful backdrop for discussions
held by the Reserve Bank in January 2006 with the chiefs of the Computer Planning
and Policy Departments of banks.
The Reserve Bank would continue to focus on oversight of the various payment and
settlement systems for ensuring safety and improving efficiency. As a step in
this direction, the Reserve Bank has framed minimum operational standards for
MICR cheque processing centres. These centres will be assessed through quarterly
returns against the standards. The Reserve Bank is in the process of bringing
out the first Report on Payment Systems Oversight. The Report would help in highlighting
the areas which require further improvements. The Reserve Bank would also endeavour
to put in place a more formal structure for conducting oversight over existing
payment systems. In order to provide a statutory basis for its oversight function
over the payment and settlement systems within the country, the Reserve Bank is
pursuing with the Government of India for enactment of a separate legislation
viz., the Payment and Settlement Systems Act. The Bill was introduced
in the Parliament on July 25, 2006.
The Reserve Bank has also framed the
Electronic Funds Transfer Regulations which are awaiting the approval of the Government
VIII.34 The Reser ve Bank would continue to harness the full
potential of IT to improve operational efficiency. The amalgamation of IT with
business requirements would pave the way for capabilities to process increased
volume of transactions and provide good and efficient management information system
inputs. It would also provide for better risk management and more effective ways
of monitoring performance of banks.