The Central Bank of India/RBI is the driving force in the development of national payment systems. The Board for Regulation and Supervision of Payment and Settlement Systems (BPSS), a subsidiary committee of the RBI. It is the highest policy-making commission of payment systems in India. Its sole prerogative is to supervise the regulation and supervision of payment systems in India. This Act has received the “green-light” by the President on 20th December 2007. The Payment and Settlement Systems Regulations, 2008 was also made by RBI and both the regulations came into force on 12th August 2008. It plays an inevitable role in improving the economic efficiency and independence of our country. These systems comprise of all types of methods that are used to systematically transfer money-currency, paper instruments such as cheques, and various electronic channels.
The main purpose of the Payment and Settlement Act is to swipe up with electronic/cashless payment systems instead of the cash payment system. The RBI was under an obligation to make regulations for the payment instructions and other matters which cause disputes between both parties. These systems are a vastly growing area, which involves advanced market policies with newer innovations in technology. One demerit of the PSS Act is that definition of ‘bank’ is not specified. Reserve Bank has to put efforts to ensure among the public that all payment and settlement systems in the country are safe, efficient, interoperable, and accessible. It also promotes financial inclusion and compliance with some international standards.
Objectives and purposes
RBI’s purpose states that the initiative would be to assure the quality of all payment and settlement systems operating in the country with 5 words-safe, sounds, secure, accessible, efficient, and authorized. The RBI erects the following two regulations:
- The Board for Regulation and Supervision of Payment and Settlement Systems Regulations, 2008 and
- The Payment and Settlement Systems Regulations, 2008.
For regulation and supervision of the payment and settlement systems under the PSS Act, 2007, the BPSS gives approval to the powers on behalf of the RBI. The Act of 2008 oversees matters, for example, an application form that has to be authorized in order to maintain the functioning of a payment system, instructions on how to pay, and determination of standards of payment systems, publishing of returns/documents/other information, requisition of accounting information and balance sheets by the provider of the system, etc.
- Section 2(1) (I) of the Act defines that a payment system is an incentive for the payment to be executed between a payer and a beneficiary. which is a process including clearing of payment and settlement services, excluding a stock exchange. It also expressly states that a ‘payment system’ involves the systems sanctioning credit cards, debit cards, smart cards, money transfer operations, etc.
- It extends to the whole of India.
Important definitions in the definition clause:
- ‘Derivative’- is an instrument for payment systems. It helps in deriving the value from the change in interest rate, foreign exchange rate, credit index, etc.
- ‘Netting’- refers to the determination by the system provider of the amount of money or securities.
- The Act also defines the ‘Payment system’ which is responsible for enabling payment systems and operations.
- ‘Settlement’ – which refers to the settlement of payment instructions that involve certain obligations occurring during the time of payment.
- ‘Systemic risk’ – which describes the occurrence of risk through any disruption in the system or any other problem that occurs during the time of payment or maybe of any inability of service by system participant.
- Section 3 of the Act, 2007 describes the role of RBI clearly; which follows with the committee of some members that is BPSS.
Misconduct and punishments
Offenses and penalties deals by Chapter 7 of this Act.
- If an authorized person breaks the provisions he shall be punishable with imprisonment of one month. And the imprisonment may extend up to 10 years. And a fine extending up to Rs. 10 lakhs.
- Any false documents or information provided by any authorized person, then the offender is punishable with imprisonment which may extend up to 3 years, and with liable fine which extends from 10 lakhs to 50 lakhs.
- A person must be punishable with a fine of Rs. 25,000 per day or of Rs. 10 lakhs, if he is unable to present any information.
- RBI has certain powers to impose fines on any contravention if noticed. No court deals with the proceedings of any cognizable offense; until the court receives a proper application, written by the officer of RBI.
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