In a bid to boost digital fund transfer systems, the Reserve Bank on Thursday said that it will remove charges levied on transactions conducted through Real Time Gross Settlement (RTGS) and National Electronic Funds Transfer (NEFT).
The NEFT system provides for batch settlements at hourly intervals, while RTGS transfers funds from one bank to another on a “real time” and on “gross” basis. Introduced in 2004, RTGS settles all inter-bank payments and customer transactions above Rs 2 lakh.
Both are popular financial transaction systems. Currently, banks charge between Rs 30-55 on RTGS and Rs 2-25 on NEFT fund transfer.
Announcing the plan on the sidelines of the second monetary policy decision, RBI Governor Shaktikanta Das said: “In the area of payment and settlement systems, it has been decided to do away with the charges levied by the Reserve Bank for transactions processed in the RTGS and NEFT systems in order to provide an impetus to digital funds movement.”
“Banks will be required, in turn, to pass these benefits to their customers. Instructions to banks in this regard will be issued within a week.”
The Reserve Bank of India (RBI) is currently working with other financial sector regulators like Sebi, PFRDA and Irda to develop an interest rate market where mutual funds, pension and insurance funds could participate in securities lending to deepen market based finance and develop an alternate to bank finance.
“IRDA, SEBI and PFRDA too could help development of interest rate markets. For instance, short selling activity could benefit if a wider pool of securities lenders can be developed.
“Insurance and pension funds, mutual funds have significant holdings of Government securities that could be used to lent to short sellers. This would avoid short-squeeze incident we saw a couple of years back, apart from generating income for these entities.
“We are working with regulators to develop a securities lending product that could enable these entities to participate in securities lending,” B.P. Kanungo, Deputy Governor, Reserve Bank of India recently said at FIMMDA meeting in Moscow.
FIMMDA is a representative body of participants in the fixed income market in India.
He said the Indian financial sector which mostly has been a bank-based one needs to develop a robust fixed income market to bring in market discipline, to augment bank finance and indeed free up bank finance for uses that cannot access the market directly.
Development of the fixed income market has been an important objective of the Reserve Bank, the Government, the SEBI and other regulators these many years. Significant progress has been made, yet a lot remains to be achieved.
The Banking regulator is also currently looking at refurbishing some regulations on treatment of cash margins as deposits, payment of interest on such margins, posting of collateral abroad to enable participants to move to global margining standards.
“The risk management at market level is pretty robust, with central counterparty settlement, exchange traded products, trade repositories, legal entity identifier.
But there is scope of improvement at entity-level as far as financial institutions are concerned, which will be tested with introduction of new accounting standards. Some other aspects of regulation – treatment of cash margins as deposits, payment of interest on such margins, posting of collateral abroad – are all under examination to enable participants to move to global margining standards.
Kanungo further said in the next five years the demand for bonds will significantly outstrip the supply.
“It is estimated that five years down the line, the demand for bonds will significantly outstrip the supply,” he said. (IANS)