Annual Report

VIII.1 A key element of financial sector reforms in India has been building the appropriate technological infrastructure for the smooth functioning of the financial system. At the core of this drive is the development of a sound and efficient payment and settlement system. During 2004-05, the thrust of the Reserve Bank’s policy initiatives was on widening the range of electronic payment products and building a sound institutional framework for regulation and supervision. The stabilisation of the Real Time Gross Settlement (RTGS) system was a significant development. The establishment of the National Financial Switch by the Institute for Development and Research in Banking Technology (IDRBT) was another noteworthy development. A Payment and Settlement System Vision Document was released in May 2005 for charting the direction for the medium term.

VIII.2 This Section profiles the initiatives taken by the Reserve Bank during 2004-05 in its endeavour to provide a safe, secure, efficient and integrated payment and settlement system benchmarked to international standards. This Section also describes implementation of Information Technology (IT) in the Reserve Bank and the developments in the Indian Financial Network (INFINET).

VIII.3 The overall turnover of various payment and settlement systems rose by 27.4 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 item, followed by foreign exchange clearing and high value clearing among the Systematically Important Payment Systems (SIPS) (Table 8.1).

VIII.4 A substantial increase in repo transactions (outside the Reserve Bank’s LAF) and transactions in foreign exchange clearing conducted by the Clearing Corporation of India Limited (CCIL) resulted in a sizeable expansion in the value of turnover under the Negotiated Dealing System (NDS) and the foreign exchange clearing system. The Reserve Bank has taken a number of steps in the recent period to strengthen the institutional, technological and procedural framework for the payment and settlement systems. The Vision Document for

Payment and Settlement Systems (2005-08) encapsulates these initiatives and lays out a road map for the future (Box VIII.1).

VIII.5 Retail payment systems recorded considerable increase in volume and value during 2004-05. These systems include the cheque clearing

The Vision Document released in May 2005 lists the achievements in the area of payment systems during the preceding three years and details the action plan with definite milestones to be reached in the next three years. The key themes identified in the action plan are safety, security, soundness and efficiency (Triple-S and E). While safety in payment and settlement systems relates to risk reduction measures, security pertains to confidence in the integrity of the payment systems. All payment systems are envisaged to be on a sound footing with adequate legal support for operational procedures and transparency norms. Efficiency enhancements are envisaged by leveraging the benefits of technology for cost effective solutions.

The roadmap for implementing the vision for payment and settlement systems within the next three years is indicated below:

• Pursuing with the Indian Banks’ Association (IBA) and major banks for setting up of a national level entity which will operate all retail payment systems in the country;

• Operationalisation of the National Settlement system for all clearings at four metropolitan centres by December 2005;

• Finalisation of the proposed EFT Regulations;

• Implementing Stage-2 of the RTGS system, i.e., Integrated Accounting System (IAS)-RTGS rollout during which all inter-bank transactions at all major centres would be settled on RTGS platform. Paper-based inter-bank clearing would be discontinued;

• Pursuing with RTGS participants to cover all their networked branches under RTGS framework, paving the way for RTGS-based customer related transactions at about ten thousand branches in the country;

• Implementation of image-based Cheque Truncation System (CTS) at the National Capital Region on a pilot basis;

• Minimum standards of operational efficiency at MICR cheque processing centres to be prepared;

• Electronic funds transfer facility at 500 capital market intensive centres as identified by Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) with a combination of RTGS/Special Electronic Funds Transfer (SEFT)/National Electronic Funds Transfer (NEFT)/ NEFT (Extended) schemes;

• Customer Facilitation Centre (CFC) at the Reserve Bank for various segments of national payment

systems (RTGS, G-Sec Clearing, Forex Clearing, MICR Clearing, ECS and EFT);

• Each payment service provider to disclose its standards, terms and conditions under which the payment will be effected and compensation policy and procedure for any deficiency in services including setting up of CFC;

• Drafting the Red Book on Payment Systems in India;

• Drafting comprehensive legislation on payment system by way of a Payment System Bill.

• Extension of National Settlement to all major clearing centres;

• Redbook of Payment Systems in India to be published by the Bank for International Settlements (BIS);

• Extension of Magnetic Character Ink Recognition (MICR) clearing to 14 additional identified centres;

• Every cheque issued to follow MICR standards;

• EFT systems to be implemented at a national level through a new retail payment institution;

• Making all payment systems in India compliant to the Core Principles for Systemically Important Payment Systems (SIPS);

• Increasing the reach of payment services by means of tie-up and collaboration with other large coverage entities such as the Post Offices;

• Government payments and receipts to be facilitated through electronic mode.

• Creation of off-city back-up arrangements for large value national payment systems such as RTGS system and Government securities clearing;

• New organisation for retail payment systems to be fully functional with all retail payment systems under its umbrella;

• Regulation of various payment systems through the proposed Payment Systems Act;

• Cheque truncation-based clearing at Mumbai, Chennai and Kolkata;

• National Settlement System to cover all major clearing houses/ clearing organisations in the country.

1. Reser ve Bank of India (2005), ‘Payment and Settlement System Vision 2005-08’, May.

system - the predominant mode for retail-payments (both the MICR and Non-MICR clearings)-electronic systems i.e., the Electronic Clearing Service (ECS -Debit and Credit), Electronic Funds Transfer (EFT), the Special EFT (SEFT) and card-based systems (credit, debit, ATM and smart cards). ECS is now
Table 8.2: Retail Electronic Payment Transactions in 2004-05

available at 44 centres. 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/SEFT/ RTGS at the back-end for settlement (Table 8.2).

VIII.6 With a view to achieving faster settlement of capital market transactions, a Working Group on Electronic Funds Transfer for Capital Markets (Chairman: Shri R. Gandhi) was constituted. The Group, inter alia, recommended that RTGS for capital market transactions should be extended up to 8 P.M. (Box VIII.2).

VIII.7 The Electronic Funds Transfer (EFT) System has been in existence since 1997 covering 15 centres where the Reserve Bank manages the clearing houses. In order to increase the coverage of the scheme and to provide for funds transfers in a quicker manner, a variant of EFT called the Special EFT (SEFT) scheme was introduced with effect from April 1, 2003. SEFT is available across branches of banks that are computerised and connected through a network so that electronic messages can travel to the receiving branch in a straight through manner. In the case of EFT, all branches of banks in the 15 locations are part of the scheme irrespective of whether they are networked or not. Therefore, in EFT there are last mile issues impacting its efficiency. In order to broad base the facilities of EFT and to provide for integration with the Structured Financial Messaging Solution (SFMS) of the Indian Financial Network (INFINET), it was decided to implement a new variant of the EFT called the National EFT (NEFT). The NEFT uses SFMS for EFT message creation and transmission from a branch to the bank’s Gateway and to the NEFT Centre, considerably enhancing the security in funds transfer operations.

VIII.8 The commencement of NEFT would lead to discontinuation of SEFT. With the SFMS facility, the bank branches can participate in both the RTGS System and the NEFT System. While RTGS is an electronic real time gross settlement funds transfer product, NEFT would be an electronic deferred net settlement funds transfer product. In order to increase the coverage of NEFT to a wider section of bank customers in semi-urban and rural areas, an enhancement of the NEFT called the NEFT-X [National EFT (Extended)] is now proposed where

Capital markets have been moving towards more efficient and quick settlement cycles. Since efficiency improvements in this segment are directly related to the settlement of funds, faster funds movement by the banking system in an electronic manner is crucial for facilitating migration to T+1 settlement from the existing T+2 settlement. These issues were examined by the Working Group on Electronic Funds Transfer for Capital Market (Chairman: Shri R.Gandhi). The major recommendations of the Group are: (i) A wide spread awareness campaign/publicity for various electronic funds transfer facilities; (ii) Expanding EFT/SEFT/NEFT/RTGS to more centres, especially where capital market transactions take place; (iii) System of penalty for delayed credit to beneficiary banks;

(iv) Straight Through Processing (STP) for electronic funds transfer; (v) Internet banking services; (vi) RTGS for capital market transfers and settlements at least up to 8 P.M.; (vii) First settlement for EFT / SEFT earlier than the current 12 noon time; (viii) Banks which have rolled out centralised Core Banking Solutions (CBS) to be a part of clearing banks for the Stock Exchanges must necessarily offer RTGS services besides EFT/SEFT/NEFT. Core/critical branches to be brought under CBS.

1. Reserve Bank of India (2004), Working Group On Electronic Funds Transfer for Capital Markets, November. the last leg connectivity would continue to be either through electronic mode or paper based. The testing of the NEFT involving six banks is in progress. The plan is to roll out NEFT by December 2005.

VIII.9 The popularity of card based transactions, especially debit cards, has increased significantly in recent years (Table 8.3). The increased use of cards and their growing share in the payment system turnover highlights the need for introduction of suitable regulatory measures. Such measures would have to ensure that rules, regulations, standards and practices of card issue are in alignment with the best customer practices. The measures should also include a setting up of a grievances redressal mechanism. In order to address these issues, a Working Group on Regulatory Mechanism for Cards (Chairman: Shri. R. Gandhi) was constituted (Box VIII.3). The Working

Group classified its recommendations regarding customer grievances/rights protection under three heads, viz., transparency and disclosure, customer rights protection and code of conduct.

Plastic cards (credit, debit and smart cards) have increasingly become an important mode of payment in the country in recent years. The number of cards issued by banks increased from 2.69 crore as on December 31, 2003 to 4.33 crore as on December 31, 2004. Accordingly, issues relating to the regulation of this mode of payment as well as those relating to customer protection have assumed considerable importance. The Reserve Bank’s Working Group on Regulatory Mechanism for Cards recommended that the present eligibility criteria for issue of credit cards are appropriate and do not warrant allowing access to non-banking entities in this business. On issues relating to customer services, the Group made the following recommendations:

(i) Communication of terms and conditions by card issuing banks to customers should be in simple language; (ii) Separate communication of Most Important Terms and Conditions (MITC); (iii) Card issuing banks should mention interest charges on an annual basis; (iv) Persons entrusted with product marketing to have high degree of professionalism and integrity; (v) Direct Selling Agents (DSA) / Direct Marketing Agents (DMA) work to be entrusted to well known firms on whom due diligence has been carried out and in case of cards issued through DSAs/DMAs, KYC norms laid down by the Reserve Bank to be scrupulously followed; and (vi) DSA/DMA staff should be properly trained and briefed and card issuing banks should formulate a code of conduct for them.

(i) Card issuing banks should take specific approval of card holders before releasing customer information;

(ii) Customer information can be released in compliance with court order, statutory compliance or to Credit Information Bureau. In case of default, only required information to be released to collection/ recovery agent;

(iii) ‘Do Not Call’ registry to be maintained by card issuing banks and the IBA for telephone and cell phone number of customers and non-customers who do not wish to be disturbed by marketing calls;

(iv) Banking Ombudsman should arbitrate in disputes between card issuing banks and cardholders;

(v) Unsolicited cards activated without approval of recipient would lead to payment of penalty by the bank concerned; and

(vi) Insurance cover for card outstanding to be introduced to cover dues in case of demise of the cardholder.

Card issuing banks should set up a self regulatory body to deliberate on important issues and card issuing banks should adopt and conform to the IBA’s Code of Conduct for card issuing banks.

1. Reserve Bank of India (2005), ‘Working Group on Regulatory Mechanism for Cards’, March 2005.

VIII.10 The paper-based clearing remains the most important retail settlement system in terms of volume with a share of 66 per cent in the total transactions recorded during 2004-05. MICR-based clearing operations have emerged as an efficient method of processing paper-based instruments. During 2004-05, one more centre (Dehradun) commenced MICR based clearing using state-of-the-art reader sorter-based processing capabilities, taking the total number of MICR centres to 40. These centres account for about 70 per cent of the total cheque volumes and value. In view of the criticality of the MICR clearing, back-up centres have been set up by the State Bank of India at each of the four metropolitan centres where the Reserve Bank is managing and operating the clearing houses. The MICR Cheque Processing Centre (CPC), set up by banks at other centres, have been advised to identify nearby CPCs to operate as back-up centres.

VIII.11 In order to increase efficiency in the existing paper-based instruments, the Cheque Truncation System (CTS) has been undertaken in the National Capital region on a pilot basis. The technical evaluation phase of the project is over and the commercial evaluation is in progress. The work relating to preparation of site and drafting of the procedural guidelines for cheque processing on image basis has also been undertaken. 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 efficient mode of settlement than manual and MICR clearings.

VIII.12 The National Financial Switch (NFS) to facilitate apex level connectivity of other ATM switches has been set up by the Institute for Development and Research in Banking Technology (IDRBT). The NFS started operation from August 28, 2004. The NFS enables customers of banks connected to it to withdraw cash and obtain information from ATMs of any of those banks (Box VIII.4).

VIII.13 The implementation of RTGS has made it possible for large value payments to be transacted in a faster, efficient, and secure manner. After the stabilisation of RTGS, the need for continuing the deferred net settlement (DNS) based inter-bank clearing was examined and it was decided that the inter-bank clearing should be done away with. Accordingly, the inter-bank clearing was discontinued in Mumbai in November 2004, followed by other centres. The RTGS facility was being provided by 95 banks, including the Reserve Bank, at over 4300 branches in 400 centres by end-March 2005. As at end-July 2005, the number of branches providing this facility has touched 8200 at 418 centres. The growth of transactions under RTGS registered a substantial increase during 2004-05 covering both inter-bank and customer originated funds transfers (Table 8.4).

VIII.14 Integration of RTGS system with the internal accounting system of the Reserve Bank is in progress. The test r un has commenced. The integrated full fledged system, when fully implemented by September 2005, would provide additional functionalities:

In recent years, plastic cards (credit, debit and smart cards) have gained greater acceptance and momentum as a medium of financial transactions. The volume and value of transactions undertaken using these cards have increased significantly. A notewor thy feature is the proliferation and increasing usage of debit cards as compared to the growth of credit cards. Automated Teller Machine (ATM) cards are steadily on the rise, highlighting the need for optimising investments made by banks. Banks were, therefore, advised to share their ATMs and many banks have joined together in small clusters to share their ATM networks. In order to facilitate inter-operability among these switches/clusters at national level, the Institute for Development and Research in Banking Technology (IDRBT), Hyderabad, has set up a National Financial Switch (NFS) to facilitate apex level connectivity of other switches established by banks. The National Financial Switch was inaugurated by the Governor at the IDRBT on August 27, 2004. The settlement arrived at by the NFS is routed through the CCIL and effected in the books of account of member banks maintained at the Deposits Account Department (DAD), Mumbai. At present, 15 banks are members of the NFS.

• 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 DAD, Reserve Bank, Mumbai;

• Multilateral Net Settlement Batch-Settlement of the Net Clearing Batches such as MICR, EFT, ECS from NCC, G-sec, Forex, CBLO and NFS-ATM from CCIL and the net clearing batches originating from BSE and NSE;

• Automated Intra-day Liquidity (IDL) facility including automated request for grant of IDL, automated reversal of outstanding IDL with incoming credits, intra-day addition/withdrawal of un-encumbered securities, offered for IDL availment; and

• Gridlock Resolution Mechanism.

VIII.15 High Value Clearing is a value added service where select branches located in close proximity to the clearing house/service branch/central business/ commercial district present instruments with value of Rs.1 lakh and above deposited by their customers within the specified cut-off time to the clearing house. High Value Clearing at some centres has been extended to cover the entire jurisdiction of the clearing house. The settlement is carried out through the Magnetic Media Based Clearing System (MMBCS). The return clearing is also held on the same day which results in the final settlement being concluded on that day.

VIII.16 High Value Clearing is a Deferred Net Settlement (DNS) system. In order to provide for a mechanism for addressing the risks in such DNS systems, a Working Group on Risk Mitigation Mechanism (Chairman: Shri R. Gandhi) was set up during 2004-05. The Group, inter alia, recommended that a contributory guarantee fund be created for the high value clearing system (Box VIII.5).

Retail payment systems typically function on a deferred net settlement (DNS) basis. In the retail payment system, no specific risk mitigation mechanism exists apart from resorting to unwinding in case of failure of any bank in fulfilling its obligation. The risks in retail payments are on account of customer transactions as the banks are not in a position to predict with a degree of certainty the value and volume of cheques (drawn on other banks) their customers will deposit with them for collection in clearing. Therefore, tracking such risks is difficult as they depend on changing patterns of customer behaviour/transactions. In order to examine the option of risk mitigation, a Working Group on Risk Mitigation Mechanism for the Indian Retail Payment System (Chairman: Shri R. Gandhi) was constituted by the Reserve Bank.

The Group recommended that it is best to limit the number of banks participating in the clearing system to a very few and low risk banks (others can participate as sub-members). In the shor t to medium ter m, risk mitigation measures may be introduced pragmatically in phases. The Group felt that all high value cheques should be presented in high value clearings twice or more a day or expand the geographical jurisdiction of high value clearing to make it co-terminus with the full or substantial

part of the clearing house. The Group also felt that on an immediate basis, high value clearing needs to be made more secure. Accordingly, the Group recommended that a guarantee fund be introduced at a centralised location for the high value clearing systems. The contribution to the guarantee fund would be based on the risk profile of the member bank, viz., the higher the risk profile of the bank, the greater would be its contribution in the guarantee fund. In the case of a settlement failure in the high value clearing system, recourse to the guarantee fund would be made on the principle of ‘Defaulter’s Pay’ system, whereby the contribution of the defaulter(s) would primarily be taken up for settlement of claims and thereafter the residual amount, if any, would be neutralised through ‘unwinding’. The Reserve Bank, in consultation with the banks, would decide about the mode and the amount of contribution to the guarantee fund.

1. Reserve Bank of India (2004), ‘Working Group on Risk Mitigation Mechanism for Indian Retail Payment System’, December.

VIII.17 Information technology (IT) has brought about a fundamental change in the way businesses function the world over. The financial sector has undergone a metamorphosis in its operations, driven primarily by information technology. The Reserve Bank has had a significant role to play in large scale IT implementation in the banking sector. Within the Reserve Bank, initial efforts aimed at mechanisation of activities in the 1980s expanded in the 1990s into computerisation of critical operations of the Reserve Bank. The year 2004-05 marked a phase of consolidation, with renewed thrust towards putting in place comprehensive systems following the Generic Architecture within the Reserve Bank and providing solutions to enhance the efficiency of the payment and settlement systems in India.

VIII.18 In order to provide clarity of the direction followed by the Reserve Bank in implementation of IT initiatives, two major publications were released during the year. The first document, Strategic Information Technology Plan (SITP), is for internal use of the Reserve Bank, while the second, the Financial Sector Technology Vision Document, enumerates the initiatives to be undertaken by the Reserve Bank in the medium term for the financial sector.

VIII.19 The broad approach followed in implementation of IT initiatives centres around the need for having homogenous IT systems catering to the varied processing requirements of the Reserve Bank and to provide for seamless integration across the various applications, wherever feasible. Recognising the need for distributed computing across the various locations of the Reserve Bank and to take advantage of the benefits of centralised processing in an IT environment, the approach adopted during the year was ‘Centralised Processing with Decentralised Access’. This approach has greatly benefited the processing requirements of the Reserve Bank’s internal house keeping and establishment related functions.

VIII.20 An Infor mation Technology Advisor y Committee (ITAC) was constituted in 2004-05 to develop an appropriate IT vision for the Reserve Bank and recommend a draft IT vision document detailing a Master Plan with milestones and timelines for a holistic use of information and communication technology architecture; to review and monitor progress of implementation of the various IT projects; and evaluate customer satisfaction and the performance of the IDRBT periodically and vet the institution’s future plans. The Committee held three meetings during the year and has provided directions on matters relating to IT implementation, Information Security (IS) and the approach towards setting up of the Reserve Bank’s Data Centre.

VIII.21 IT has become a tool deeply embedded in the day-to-day processing of the Reserve Bank’s activities. This has necessitated that all the functional units comprising the Regional Offices and the Central Office Departments of the Reserve Bank are fully computerised and that they use IT to a substantial extent. A review of the level of usage of IT by these units in respect of the critical implementation factors reveals a high level of achievement (Table 8.5)

VIII.22 Connectivity of all the departments and all locations of the Reserve Bank has been completed and all users can operate in a networked environment. The large scale use of corporate e-mail services for official communication has encouraged migration towards a centralised processing environment. Towards this end, the first set of applications which were made operational during the year is the Centralised Public Debt Office (CPDO) System. The system is being implemented in stages and is expected to be fully operational as at the end of September 2005. Another important application which is currently under implementation is the Integrated Establishment Section (IES) which is poised to take care of the requirements of staff related processing for all establishment functions. Both the software applications are based on a centralised system for data storage and processing; facilities for localised access and localised processing have also been in-built in the software.

VIII.23 The Integrated Accounting System (IAS) is a state-of-the-art system for the Deposit Accounts Department (DAD) of the Reserve Bank. This system takes care of the entire processing requirements relating to accounts maintained by the constituents apart from taking care of the internal accounting requirements of the Reserve Bank. This system is being tested with a view to implementing it in 2005.

VIII.24 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 mega bytes per second (mbps) links across all the offices of the Reserve Bank, which would enable larger communication traffic flows. The dark fibre optic cable based link, which links the main production and backup sites of the critical payment systems processing centres, is used extensively for on-line replication of data so that there is minimal down time in the event of any disruption of services at any one of the centres. Periodical testing of the systems at the backup centre was also undertaken during the year.

VIII.25 With rapid computerisation across different financial sector entities, it becomes essential that various institutions including the central bank adopt international best practices and standards. In order to ensure this and to facilitate Straight Through Processing (STP), the Reserve Bank is taking steps towards getting ISO (Inter national Standards Organisation) and BS7799 certification in respect of certain critical applications and systems (Box VIII.6).

VIII.26 With newer deliver y channels being facilitated by IT, customers of banks have the choice of a variety of delivery channels. While the Reserve Bank does not specify the nature of the delivery channels which a bank may choose to offer to its

With the Reserve Bank using information technology in every area of work, standardisation assumes importance. The Reserve Bank has been taking steps towards standardising on the operating system, database and messaging platform. The Reserve Bank had also constituted a Committee on IS Audit and IS Security (Chairman: Dr. R.B.Barman) in 2001. The Group has given comprehensive guidelines for adopting standards and procedures on a wide range of Information Security (IS) audit and security issues for the banking and financial sector.

In order to give a level of comfort to the users of IT and also the financial sector in general, the Reserve Bank has decided to go in for BS7799 Certification and the process is on. BS7799 is a standard setting out the requirements for an Information Security Management System. It helps identify, manage and minimise the range of threats to which information is regularly subjected. The initial action for getting certification for the critical applications viz., Clearing House, Establishment and Current Account has been undertaken.

customers, guidelines relating to IT based delivery channels from the perspective of conforming to critical minimum requirements are issued by the Reserve Bank. At the root of all the new delivery channels is the need for banks - especially the public sector banks - to migrate towards the use of core banking solutions, which facilitate all centralised offerings by the banks. During the year, the Reserve Bank took steps to ensure that banks migrate from their current systems to core banking systems. Out of the 27 public sector banks, 8 have already implemented core banking solutions while 12 are at various stages of implementation.

VIII.27 In order to facilitate data capture for the collection of direct taxes using the Online Tax Accounting System (OLTAS) in respect of the Government, the necessary software for the Reserve Bank was developed and deployed. The Centralised Public Accounts Department system with a centralised database and decentralised access is being outsourced for development. These initiatives have facilitated speedier accounting of Government transactions and for providing accounting related information pertaining to funds availability to Government departments on an almost real time basis.

VIII.28 The secured website for receipt and dissemination of data/information was operationalised. The Central Accounts Section data and clearing data of the National Clearing Cells are being made available through this secured mode accessible through the internet. The enhanced Centralised Database Management System Internet (CDBMSi) has also been made available through the secured website. An Enterprise Knowledge Management System (EKMS) has been envisaged for the Reserve Bank and will be implemented in stages(Box VIII.7).

The Reserve Bank has information - both structured as well as unstructured - in different forms. The Reserve Bank is moving towards an infor mation accumulation mechanism to systematically leverage this scattered knowledge for efficient and effective use. Focusing on creating, gathering, organising and disseminating an organisation’s ‘knowledge’ in knowledge repository is the key idea behind the Enterprise Knowledge Management System (EKMS). The proposed EKMS for the Reserve Bank has been initiated for designing a system to enable the users to reach to the knowledge base, whenever and wherever required, for the purpose of decision making. Various applications could form an integral part of the EKMS. Of these, following have been identified as building blocks for the Knowledge Management System:

• Document and Content Management System - to help

organise the document and content for faster retrieval whenever required;

• Workflow Automation System - to automate the organisational processes for faster action, better management and for reducing paper;

• Collaboration Techniques - to help exchange ideas and important information among all;

• Intranet - to help departments display the information for specific purpose of the users within the department/LAN; and

• Knowledge Portal - front-end to display information in the form of customisable portals, keeping in view the specific requirement of the users.

The challenge for the Reserve Bank is to put in a place a culture of sharing individuals’ knowledge assets within the organisation.

VIII.29 With the growing use of technology within the Reserve Bank, a need for a Business Continuity Plan (BCP) assumes importance. Disaster Recovery is the core of an effective BCP. The Bank is setting up Data Centres in zones with different seismic classifications.

VIII.30 During 2005-06, the priority of the Reserve Bank would be the strengthening of institutional framework for regulation and supervision of payment and settlement systems. As a part of this initiative, the Reserve Bank has constituted the Board for Regulation and Supervision of Payment and Settlement Systems (BPSS) as a Committee of its Central Board. The functions and powers of BPSS include policy formulation relating to the regulation and supervision of all types of payment and settlement systems, setting standards for existing and future systems, authorisation of the payment and settlement systems and determination of criteria for membership to these systems. A new depar tment called Department of Payment and Settlement System (DPSS) has also been constituted in the Reserve Bank. The National Payments Council, functioning since 1999, received recognition of a Technical Advisory Committee to the BPSS.

VIII.31 The direction provided in the Vision Document would provide a road map for streamlining and refining the payment systems in the medium-term. The definitive role of IT in the functioning of the Reserve Bank as also for the entities comprising the financial sector is gaining greater significance. Technology would bridge the gaps in terms of reach and coverage of systems and will also enable better decision making based on accurate information, reduced costs and overall improvement in operational efficiency. IT based initiatives would focus on meeting the three pronged objective of better house keeping, improved customer service and overall systemic efficiency.