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RBI board approves radical changes, introduces COO post as proposed by Raghuram Rajan

In a bid to introduce radical changes in the functioning of the Reserve Bank of India, the RBI board has approved Governor Raghuram Rajan’s proposal of shrinking organizational cumbersomeness and reducing overlaps. It also seeks to create the post of Chief Operating Officer (COO), an executive who’s likely to be made responsible for executing the RBI’s reform agenda.

Rajan proposed to bring all aspects of RBI under 5 functional departments to be supervised by 4 Deputy Governors and a COO. He suggested merging some departments to avoid overlaps. He is also inclined to make lateral hires from the private sector as practiced in the West.

Nachiket Mor is seen as the most likely candidate for the post of COO. Mor is a former executive director of ICICI Bank and also chaired the RBI panel on financial inclusion.

Since the position of COO is likely to be at the deputy governor level, the post’s status will have to be discussed further with the government, and which may also necessitate some legislative amendments.

Now only 3 transactions per month from ATMs of other Banks

The Reserve Bank of India (RBI) has allowed Banks to set a limit on free ATM transactions customers can do at ATMs of rival lenders. Now customers of a bank can make only three free transactions per month from the ATMs of rival banks. The banks are also allowed to set a limit on the number of free transactions at their own ATMs at five. The central bank has also permitted banks to charge up to Rs 20 for every transaction beyond the limit.

New charges will apply for transactions at ATMs located in six metro centres — Mumbai, New Delhi, Chennai, Kolkata, Bengaluru and Hyderabad.

The move is aimed at rectifying the skewed development of ATMs in the country. Banks continued to set up ATMs in cities despite high level of concentration, as these could be used to cross-subsidize other products. However, there was a disinclination to expand the network in rural areas. The move by RBI would bring down the number of transactions in metros and could lead to some level of consolidation.

However, this reduction will not apply to customers having no-frills, small or Basic Savings Bank Deposit Account (BSBDA) type of accounts as well as for transactions carried out by account holders at ATMs situated outside these six metros. Banks are also allowed to provide free transactions above the mandated limit.

The number of automated teller machines (ATMs), which stood at a little over 27,000 as at end-March 2007, has increased to over 1.6 lakh across the country by end-March 2014.

Bimal Jalan appointed as head of Expenditure Management Commission

Former Reserve Bank of India (RBI) Governor Bimal Jalan has been appointed as head of the Expenditure Management Commission, which will study various aspects of expenditure reforms to be undertaken by the government. The panel will submit its interim report before the 2015-16 Budget and its final report before the 2016-17 Budget.

The formation of EMC follows the announcement of the same made by Finance Minister Arun Jaitley in Budget 2014-15.  With the setting up of EMC, the government intends to review the allocative and operational efficiencies of the government expenditure to achieve maximum output.

Previous ERCs

Atal Bihari Vajpayee government initiated Expenditure Reforms Commission (ERC) headed by former finance secretary K P Geethakrishnan during the year 1999-2000. This commission suggested moderating the central government machinery and winding up of some government departments. A few recommendations of the panel were implemented during the term of then Finance Minister Yashwant Sinha. 

In 2002, UPA government appointed former finance secretary Vijay Kelkar as the head of the Committee for fiscal consolidation plan which included cutting down the subsidies. The Committee recommended increasing diesel and cooking gas prices gradually. The panel’s suggestions are being followed.

Reserve Bank issue draft guidelines for ‘anytime anywhere’ Bharat Bill Payment System

With a view to introduce an ‘anytime anywhere payment system’, the Reserve Bank of India (RBI) issued draft guidelines for the implementation of Bharat Bill Payment System (BPPS).

The draft mentions the requirements and the basic framework of operating the BBPS, and stipulates the eligibility criteria, standards for settlement model and customer grievance redressal, roles and responsibilities and scope for entities seeking to be part of BBPS.

RBI’s plan to implement an ‘anytime anywhere’ centralized payment system is based on a report submitted by the GIRO (Government Internal Revenue Order) Advisory Group. GIRO Advisory Group (GAG) was constituted by the RBI in October 2013, under the chairmanship of Prof. Umesh Bellur, Indian Institute of Technology, Bombay to implement a national GIRO-based Indian Bill Payment System

The panel had recommended a mechanism for centralized bills payment system in India, mainly by laying out 2 organizations:

  1. Bharat Bill Payment Services (BBPS)
  2. Bharat Bill Payment Operating Units (BBPOUs)

Bill Payments in India: Issues and challenges

What do Bill payments in India mainly comprise of?

Bill payments form a key portion of all retail payment transactions. Bills include utility services such as school/university fees, examination fees, Government payments, pre-paid payment instruments top-up, mobile phones recharge/top-up etc.

How are Bill payments at present done in India?

Currently, customers make bill payments at Bill Owners Customer Point (BOCP), cheque drop boxes, bank branches, agent outlets, and via electronic modes. Options available include:

  • Direct payment to billers – biller operated payment centres, Internet Banking / Payment Gateway, ECS (Electronic Clearing Service).
  • Aggregators and Banks – Internet Banking, Bill Presentments, Standing Instructions.
  • Bill Pay Agents – Collection Points, Business Correspondents.

What are the shortcomings observed in the present scenario of bill collection/ payment process in India?

  • Absence of Interoperability- Limited or no interoperability, thus each biller needs to establish and supervise its own collection points (BOCPs.
  • Consumer preference for BOCP- A consumer prefers that BOCP where (s)he feels comfortable by a direct payment and an instant printed receipt received for the payment. Due to lack of visibility consumer usually do not trust agents’ networks.
  • Poor Accessibility- BOCPs are generally concentrated in urban centers and are not easily accessible to people in rural/remote areas.
  • Lack of coordinated initiative- No industry-driven initiative as of yet to develop a common interoperable system, which would bring about comfort of payment to users and cost and functional efficiency to the Billers.
  • There is no common website from where all bills can be accessed and smoothly paid .

Why there is a need for a national ‘GIRO-based Indian Bill Payment System’?

Those people who have access to internet banking facility can pay their bills online, however there are a huge number of consumers who don’t have access to internet banking and thus they cannot pay their bills online. Such consumers have to physically go at different places to pay their different bills.  Albeit, the ECS (Electronic Clearing Service) debit volume is growing in India at the rate of 5% per annum and in 2012-13 it was Rs 176.50 Million, but, still this is very small when compared with total billing volume in largely populated country like India. Most of the consumers in India still pay their bills by physically visiting different customer outlets.

Therefore, there is a requirement for an interoperable, integrated bill payment system in India which:-

  • Provides consumers a single point for their various bill payments
  • Near to place of work or residence
  • Enables payment of any bill at any place
  • Allow payments via any mode (cash, cheque, credit card, debit card, prepaid payment instruments etc.)
  • Includes bank branches, post offices, business correspondents,  retail agents of aggregators, ATMs (Automated Teller Machine), etc.
  • Furnishes quick confirmation of payment made via SMS or a payment receipt
  • Provides facility of payment of bills via internet banking (if possible a single website), mobile banking and IVRS (Interactive Voice Response System)
  • Is efficient and cost effectual substitute to the present systems
  • Motivates billers to switch over to the new system
  • Sets up billing standards in India
  • Increases consumer trust and experience
  • Reduces the expenditure that billers incur on collection of bills at their own collection centres

The above issues and challenges can be resolved if we have a centralized infrastructure for bill payments in India which brings about interoperability with an all India-standard.

What is the Model for pan-India centralised bill payment in India as suggested by the Umesh Bellur headed GIRO Advisory Group?

The pan-India centralised bill payments infrastructure would have two types of entities:

  • Bharat Bill Payment System (BBPS)- Will set standards and conduct of centralised payment, clearing and settlement process
  • Bharat Bill Payment Operating Units (BBPOUs)- Will act as operating unit(s)

The model would thus be a 2-tier structure with a single standard setting body (BBPS) with payment and settlement functionalities/responsibilities and multiple operating entities (BBPOUs).

Bharat Bill Payment System (BBPS)

A ‘not-for-profit organization’ registered under the Companies Act 1956, like NPCI (National Payments Corporation of India). It shall have a Steering Group constituting of representatives from the participating BBPOUs and other stake holders.The Roles and Responsibilities of BBPS include:

  • Setting Business standards and processes the BBPOUs, management of dispute resolution, standards for information exchange.
  • Marketing and brand positioning of the pan-India Bharat Bill payments system
  • Accomplishing payment, clearing and settlement of the transactions executed at several BBPOUs
  • Act as final dispute resolution escalation point
  • Set up a single website on behalf of the brand for online payment of bills

Bharat Bill Payment Operating Units (BBPOUs)

A for–profit company registered under the Companies Act 1956 and has obtained requisite certification from BBPS for participating in the the centralised bill payments system.

Roles and Responsibilities of BBPOUs:-

  • Infrastructure development (including APIs as per standards set by BBPS).
  • Transaction handling
  • Handling customer grievance / disputes at first place
  • Provide Value-added services
  • Ensure confidentiality and privacy standards are in place

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