See discussions, stats, and author profiles for this publication at: https://www.researchgate.

net/publication/337481839

Payment System in India

Article · October 2018

CITATIONS READS

0 5,224

All content following this page was uploaded by B. Sudha on 24 November 2019.

The user has requested enhancement of the downloaded file.

 Special Issue for International Conference on Business Research,
International Journal Faculty
Dept of Commerce, of Research in Engineering,
of Science IT and Social Sciences
and Humanities
SRM Institute of Science & Technology, Kattankulathur, Tamilnadu.

PAYMENT SYSTEM IN INDIA

1
DR.B.SUDHA 2DR.S.CHITRA
1
Associate Professor, Department of Banking Management
Alagappa University, Karaikudi
2
Associate Professor and Head, Department of Commerce
SRM Institute of Science and Technology, Kattankulathur

Abstract mobile banking, ATM based, Point-of-sale terminals, online

transactions.
Payment and settlement systems help to transfer money from one
person to another person through paper based and electronic 1) Paper Based instruments
modes. The initiatives taken by the Reserve Bank of India has
created a strong technology based system for payments, allowing Paper Based Payment instruments consist of the following:
seamless paper based payment and electronic fund transfer
between two parties with very minimal transaction cost. This
A) Cheques - A cheque is the widely using payments and
article focuses on the different types of electronic payment systems settlements in India. It is a negotiable instrument. There are
presently operational in India. three parties involved in the cheque transaction:
Key words: Payment systems, Fund transfer, Electronic payment,  Drawer- The person who holds an account in a
Cheques particular bank and draws a cheque to make
payment.
Introduction  Drawee- The person to whom the cheque has been
drawn
Payment and settlement systems in India play a key role in  Payee- The party who represents the cheque for
improving the overall economic efficiency. There are receiving the payment.
various payment systems used by the companies to buy or B) Bank Drafts- Bank Draft is another negotiable
sell goods and services. Now a day, individual receive their instrument governed by the Negotiable Instrument Act
salaries through payment system and they rely on them for 1881. It is a facility offered by the bank to its account
retail purchases. The government depends on them to holders only. A bank draft is a payment made by the bank
receive taxes and pay benefits. Payment systems are crucial on the behalf of the bank.
to the operation of financial markets as they are used to
settle trade of various financial instruments such as 2) Electronic Payment System- Electronic Payment
government securities, commercial paper, stocks, foreign System in India can be classified into two types such as
exchange and derivatives. In India payment system can be Gross Settlement System and Net Settlement System. In
classified into three types, i.e. Paper Based Payment 1990 RBI took initiative for the electronic clearing service
System, Electronic Payment System and Other Payment in order to enhance better payment and settlement system in
System. Payment systems help safe and timely completion India.
of transactions. Payment systems allow the customers of one A) RTGS (Real Time Gross Settlement System) - RTGS
bank to make payments to other banks, thereby minimizing is a real time and gross settlement system. Real Time means
the risks of fraud and erroneous payments to illegitimate the settlement of the transaction is started at the time it
creditors. In order to make the payment system more received. Gross Settlement means transactions are
efficient and secure in India the payment and settlement individually processed. No other transaction can bunch with
systems are regulated by the Payment and Settlement another transaction. The transaction is recorded in the books
Systems Act, 2007 (PSS Act). The Board for Regulation and of RBI so it is final and it is considered as an irrevocable
Supervision of Payment and Settlement Systems (BPSS), a transaction.
sub-committee of the RBI is the highest policy making body  In RTGS, there is a minimum limit for the transfer
on payment systems in the country. of money is Rs 200,000 and there is no maximum
limit for the transfer of money.
Objectives of the study  Customers can avail facility of RTGS between 9:00
am to 4:30 pm on weekdays and on Saturdays from
This study is empirical and descriptive in nature and 9:00 am to 2:00 pm
highlights the different payment systems. This also exhibits  In order to enter into RTGS transactions, the bank
the performance of payment and settlement system in India. must have CBS (Core Banking Solution) which is
assigned to enable the bank and branches.
Payment System Initiatives B) NEFT (National Electronic Fund Transfer) - NEFT is
introduced by RBI in 2005, it enables individuals, firms and
The central bank of our nation RBI (Reserve Bank of India) corporate bodies to transfer funds from any bank branch to
has taken many initiatives towards introducing and any individual, firm or corporate bodies.
upgrading safe, sound and efficient modes of payment
 In NEFT, the transfer is done on the hourly basis.
systems in the country. At present, there are payments in
There are twelve settlements from 8 am to 7 pm on
India can be made through paper based instruments,
weekdays and six settlements from 8 am to 1 pm on
electronic instruments and other instruments, such as, Saturdays.

International Journal of Research in Engineering, IT and Social Sciences Page 270

 Payment System In India Dr.B.Sudha & Dr.S.Chitra

 There is no maximum and minimum limit in NEFT 3. White Label ATMs – These ATMS are owned and
for the transfer of funds in India. operated by Non-banking Company and serve the
 In order to enter into the RTGS the bank must be customer of all banks.
enabled for NEFT. C) Point of Sale Terminal- It enables customers to make
C) NECS (National Electronic Clearing Service) Credit - payment for purchase of goods and services by means of
In 1990s RBI introduced ECS (Electronic Clearing Service) credit and debit cards. To facilitate customer convenience
for the settlement of repetitive transactions such as salary, the bank also permitted cash withdrawal using debit cards
interest and dividend payment. It facilitates customer issued by banks at POS terminals.
account to be credited on the specified value date. Presently Different codes related to transfer of money in India
it is available in all major cities in the country. In 2008, the A) IFSC (Indian Financial system Code) - It is an
RBI launched a new service, i.e. National Electronic alphanumeric code that uniquely identifies a bank branch
Clearing System. It facilitates all CBS bank branches to participating in two electronic fund transfer systems i.e.
participate in the system irrespective of their location across Real Time Gross Settlement and National Electronic Fund
the country. Transfer
D) NECS (National Electronic Clearing Service ) Debit -  It is a 11 character code assigned by RBI
It facilitates consumer to make routine and repetitive  The first 4 alphabetic characters representing the
payments by mandating bank branches to debit their bank name.
accounts. There is no minimum and maximum limit for the  The 5th character is zero and reserved for future.
transfer and it is available for all the major cities in the  The last 6 characters representing branches of the
country. bank
E) IMPS (Immediate Payment Service) National B) SWIFT (Society for Worldwide Interbank Financial
Payments Corporation of India took up the initiative to set Telecommunication) Code - It is a unique identification
up immediate payment service. In this mechanism money code for both financial and non-financial institutions
can be transferred immediately from one account to another approved by the International Organization for
account, within the same bank or accounts across other Standardization (ISO). Basically, it is used for overseas fund
banks. transfer. It is also known as Bank Identifier Code (BIC)
F) UPI (Unified Payment Interface) It is officially  It is an 11 character code
launched by National Payment Corporation of India under  The first 4 alphanumeric characters represent the
RBI for instant interbank real time transactions using name of the bank
android apps. With this immediate money transfer can be  The next 2 alphanumeric characters represent the
done through mobile. It is single application for accessing name of the country
different bank accounts  The next 2 letters or digits represent the digit code.
3) Other Payment System – it includes following:
 The last 3 letters or digits represent branch code.
A) Mobile Banking System - In 2008 RBI brought a set of
C) MICR (Magnetic Ink Character Recognition) Code -
operating guidelines on mobile banking for banks.
It is a unique code, mainly used for processing and clearing
According to the guidlines only banks which are licensed
of cheques and documents. MICR codes can easily read by
and supervised in India and have physical presence in India
the humans.
are allowed to mobile banking after necessary permission
 It is a 9 digit code
from RBI.
 The first 3 digits represent the city code that in
B) ATMs (Automatic Teller Machines) - ATMS are
which bank branch located.
electronic banking outlets that allow customers to complete
basis transaction without visiting a bank branch. Saving  The next three digits represent bank code
bank customers can withdraw cash from any bank terminal  The last three digits represent bank branch code
up to 5 times in a month without being charged. There are
three types of ATMs in India PERFORMANCE OF PAYMENT AND
1. Bank’s Own ATMs - These are owned and SETTLEMENT SYSTEM OF INDIAN BANKS.
operated by the owner bank and carry the bank’s
logo. Table 1, 2, 3, 4 and 5 shows the performance of Payment
2. Brown Label ATMs – These ATMs is not owned and Settlement System of Indian Banks.
by the sponsor banks. They are owned and operated
by third parties

Table: 1 ATM & POS Statistics of PSBs on May - 2018

ATMs (in number) POS
S. No. Bank Name On-Line
On-site Off-site Total Rank Rank

1 Allahabad Bank 850 265 1115 21 3063 20

2 Andhra Bank 3182 808 3990 9 14311 10
3 Bank Of Baroda 6295 3424 9719 2 72880 4
4 Bank Of India 3328 4095 7423 6 96203 3

International Journal of Research in Engineering, IT and Social Sciences

 Payment System In India Dr.B.Sudha & Dr.S.Chitra

5 Bank Of Maharashtra 1319 565 1884 18 3439 19

6 Canara Bank 5034 4228 9262 4 19209 8
7 Central Bank Of India 3406 1431 4837 7 3665 18
8 Corporation Bank 2355 751 3106 12 156378 2
9 Dena Bank 351 1334 1685 19 4987 16
10 Indian Bank 2725 646 3371 11 11443 11
11 Indian Overseas Bank 2211 753 2964 13 18345 9
Oriental Bank of
12 Commerce 2336 299 2635 14 8139 12
13 Punjab And Sind Bank 1102 104 1206 20 1066 21
14 Punjab National Bank 5435 4265 9700 3 52556 6
15 Syndicate Bank 3904 399 4303 8 7818 13
16 Uco Bank 2134 427 2561 15 5125 15
17 Union Bank Of India 4550 3093 7643 5 56904 5
18 United Bank Of India 1038 1100 2138 17 4123 17
19 Vijaya Bank 1674 490 2164 16 7032 14
20 IDBI Ltd 2185 1554 3739 10 30102 7
21 State Bank Of India 26336 32997 59333 1 618452 1
Total 81750 63028 144778 1195240
Source: RBI annual publications
with 9719 ATMs and in case of the POS Corporation
The above table depicts the number of ATMs Bank stood in the Second place. The Total number of
(Automated Teller Machine) (onsite and offsite) and POS ATMs of public sector banks as of May 2018 was 144778
(Point of Sale online) of Public Sector Banks on May out of which 81750 was on-site ATMs and 63028 was
2018. SBI stood in the first place and deployed 59333 off-site ATMs and 1977166 and the Total number of POS
ATMs and 6,18,452 POS followed by Bank of Baroda was 1195240.

Table: 2 ATM & POS Statistics of PvtSBs for May - 2018

ATMs (in number) POS
Rank
Sr. No. Bank Name
On-site Off-site Total Rank On-Line

1 Axis Bank Ltd 2427 10939 13366 2 505792 1

2 Bandhan Bank Ltd 475 0 475 16 22401 7
Catholic Syrian Bank
3 Ltd 214 43 257 19 0 20
4 City Union Bank 924 710 1634 8 9954 13
Development Credit
5 Bank 282 253 535 15 1580 18
Dhanalakshmi Bank
6 Ltd 205 141 346 18 1114 19
7 Federal Bank Ltd 1183 501 1684 7 11049 11
8 HDFC Bank Ltd 5877 6829 12706 3 414056 3
9 ICICI Bank Ltd 5256 9133 14389 1 333074 4
10 IDFC Bank Limited 55 2 57 20 1642 17
11 Indusind Bank Ltd 994 1238 2232 4 37269 6
Jammu And Kashmir
12 Bank 688 517 1205 12 14540 9
13 Karnataka Bank Ltd 540 820 1360 9 13132 10
14 Karur Vysya Bank Ltd 767 1031 1798 6 21877 8
Kotak Mahindra Bank
15 Ltd 1075 1148 2223 5 9784 14

International Journal of Research in Engineering, IT and Social Sciences

 Payment System In India Dr.B.Sudha & Dr.S.Chitra

16 Ratnakar Bank Limited 187 181 368 17 472430 2

17 South Indian Bank 587 739 1326 11 10166 11
Tamilnad Mercantile
18 Bank Ltd 468 667 1135 13 4957 16
The Laxmi Vilas Bank
19 Ltd 431 595 1026 14 5668 15
20 Yes Bank Ltd 886 472 1358 10 86681 5
TOTAL 23521 35959 59480 1977166
Source: RBI annual publications

The above table depicts the number of ATMs Bank with 13366 ATMs and in case of POS, Ratnakar
(Automated Teller Machine) (onsite and offsite) and POS Bank stood in the second place with 472430 POS
(point of sale online) of Private Sector Banks on May (online). The Total number of ATMs of private sector
2018. ICICI Bank stood in the first place and deployed banks as of May 2018 was 59480 out of which 23521 was
14389 ATMs and in case POS Axis Bank stood in the on-site ATMs and 35959 was off-site ATMs and 1977166
first place with 505792 POS (online), followed by Axis and the Total number of POS was 1977166.

TABLE: 3 Green Payment Channels Statistics for the period 2017-18

System Payment System Indicators
Volume (Million) Value (Rs.Billion)
RTGS 124.46 1,467,431.99
Customer Transactions 120.71 1,036,698.74
Interbank Transactions 3.72 130,426.03
Interbank Clearing 0.024 300,307.22
CCIL Operated Systems 3.50 1,074,802.02
CBLO 0.20 283,307.58
Govt. Securities Clearing 1.12 370,363.78
Outright 0.92 113,998.80
Repo 0.199 256,364.98
Forex Clearing 2.17 421,130.66
Retail Electronic Clearing 5,467.29 192,017.98
ECS DR 1.54 9.72
ECS CR (includes NECS) 6.14 118.64
EFT/NEFT 1,946.36 172,228.52
Immediate Payment Service (IMPS) 1,009.80 8,924.98
National Automated Clearing House (NACH) 2,503.46 10,736.12
Cards 13,358.62 38,214.64
Credit Cards 1,412.97 4,626.33
Usage at ATMs 7.81 36.68
Usage at POS 1,405.16 4,589.65
Debit Cards 11,945.65 33,588.31
Usage at ATMs 8,602.26 28,987.61
Usage at POS 3,343.39 4,600.70
Prepaid Payment Instruments (PPIs) 3,459.05 1,416.34
m-Wallet 3,025.98 1,086.75
PPI Cards 432.63 310.41
Paper Vouchers 0.44 19.19
Mobile Banking 1,872.26 14,738.54
Cards Outstanding 898.56 –
Credit Card 37.48 –
Debit Card 861.08 –
Number of ATMs (in actuals) 222247 –
Number of POS (in actuals) 3083067 –
Source: RBI Annual report

The above table 3 explains the various green reduces the time and cost per transaction. The amount of
payment channel statistics for the period 2017-2018. fund transfer through RTGS during 2017-18 was
Payment through green channels is a fast and easy mode Rs.1,467,431.99 billion and the volume of transactions
of fund transfer from one account to another and also it through card payment is 13,358.62 million transactions

International Journal of Research in Engineering, IT and Social Sciences

Special Issue for International Conference on Business Research,
Dept of Commerce, Faculty of Science and Humanities
SRM Institute of Science & Technology, Kattankulathur, Tamilnadu.

Table: 4 Card Statistics of Public Sector Banks - May 2018

Credit Cards Debit Cards
No .of Amount of No .of
No. of Transactions No. of Transactions Amount of transactions
S.No Bank Name outstanding transactions outstanding
(Actuals) (Actuals) (Rs. Millions)
cards as at (Rs. Millions) cards as at
the end of the the end of the
ATM POS ATM POS ATM POS ATM POS
month month
1 Allahabad Bank 0 0 0 0.0 0.0 13042946 8196370 4687837 20161.6 3023.8
2 Andhra Bank 240799 14162 503715 67.2 1224.0 24741870 8689780 6050753 29446.1 8014.8
3 Bank Of Baroda 128507 5643 349339 23.4 834.3 53166018 19117773 15849372 81632.3 13363.9
4 Bank Of India 210861 28175 345423 152.4 920.8 53915764 31035304 11596481 70374.6 9931.0
5 Bank Of Maharashtra 0 0 0 0.0 0.0 6688230 6576356 4068577 24386.8 4561.6
6 Canara Bank 223101 30604 419655 156.1 910.3 45129796 21543169 10261870 92469.2 13864.3
Central Bank Of
7 India 95761 2505 159605 12.0 365.8 30063158 11268967 4813842 47804.6 6077.2
8 Corporation Bank 106836 2034 155498 9.7 380.2 12665121 7084263 3655140 29188.0 4331.5
9 Dena Bank 0 0 0 0.0 0.0 8948470 4266897 1683663 17300.4 2184.8
10 Indian Bank 85324 3416 137825 17.1 35.0 18469723 26931068 5499320 73500.7 6547.3
Indian Overseas
11 Bank 54460 791 104735 3.2 247.8 18833970 10611157 6518956 49189.3 7495.5
Oriental Bank Of
12 Commerce 0 0 0 0.0 0.0 11178049 5100717 2948823 22591.6 3601.9
Punjab And Sind
13 Bank 0 0 0 0.0 0.0 2966339 1217042 351639 5146.1 593.3
Punjab National
14 Bank 325131 9542 675835 40.6 1515.8 63582649 23145289 12894957 104127.3 16928.1
15 Syndicate Bank 85599 3844 159771 13.9 356.2 16274194 8319820 4119905 33976.9 5015.3
16 UCO Bank 0 0 0 0.0 0.0 10572279 5257574 2415424 20597.0 3281.0
17 Union Bank Of India 222035 3851 200281 18.8 565.7 22316204 24616623 7173883 77531.5 8631.0
18 United Bank Of India 5788 0 4920 0.0 9.0 12448784 6495612 1631667 24476.5 2183.7
19 Vijaya Bank 61940 10537 278969 52.0 304.1 6562666 5586123 1895699 18314.0 2796.2
20 IDBI Ltd 28773 824 158789 4.0 358.2 11697817 8922033 7331453 39397.5 7418.6
21 State Bank Of India 6472514 127354 21235539 503.2 76197.9 282976998 352751599 97390937 1065286.2 141697.3
Source: RBI annual publications

International Journal of Research in Engineering, IT and Social Sciences Page 274

 Payment System In India Dr.B.Sudha & Dr.S.Chitra

Table: 5 Card Statistics of Private sector Banks May 2018

Credit Cards Debit Cards
No .of Amount of No .of
No. of Transactions No. of Transactions Amount of transactions
S.No Bank Name outstanding transactions outstanding
(Actuals) (Actuals) (Rs. Millions)
cards as at (Rs. Millions) cards as at
the end of the the end of the
ATM POS ATM POS ATM POS ATM POS
month month
1 Axis Bank Ltd 4576834 81538 13127005 338.1 48698.8 23147088 23744739 23046431 111259.4 33744.7
2 Bandhan Bank Ltd 0 0 0 0.0 0.0 10710513 2655995 610698 10547.6 937.5
Catholic Syrian Bank
3 Ltd 0 0 0 0.0 0.0 1104882 561294 165740 1887.2 306.5
4 City Union Bank 5438 575 18270 2.6 51.9 1806809 2200668 767424 9949.0 1018.6
Development Credit
5 Bank 34980 4960 73901 23.0 69.0 568185 793768 307424 2309.7 585.2
Dhanalakshmi Bank
6 Ltd 7568 91 16340 0.3 34.9 608754 542027 225660 1904.4 357.3
7 Federal Bank Ltd 0 0 0 0.0 0.0 6731616 6522759 3155567 34212.7 4811.9
8 HDFC Bank Ltd 10990935 181659 38322777 960.9 129692.9 24939721 33711489 41316850 173978.1 58593.2
9 ICICI Bank Ltd 5187404 38584 18566905 138.7 54020.3 42509897 31982412 37037674 160839.2 53627.4
10 IDFC Bank Limited 0 0 0 0.0 0.0 1014068 1621006 835786 5746.6 715.5
11 Indusind Bank Ltd 820224 14600 2671526 74.0 17587.3 3935883 2870930 2243294 13556.2 3484.8
Jammu And Kashmir
12 Bank 131691 10423 209665 32.8 806.5 3818618 5557238 95984 25402.0 258.6
13 Karnataka Bank Ltd 0 0 0 0.0 0.0 4399732 4181522 2181908 16990.8 2732.9
Karur Vysya Bank
14 Ltd 0 0 0 0.0 0.0 4321242 5550338 2275183 24240.8 3075.1
Kotak Mahindra
15 Bank Ltd 1545831 40665 4355327 159.8 12374.8 8886948 6869030 8217307 27725.0 9411.0
Ratnakar Bank
16 Limited 911985 66243 2632124 330.0 10109.6 864137 641206 449334 2374.9 569.4
17 South Indian Bank 0 0 0 0.0 0.0 3915834 2785622 1460603 11732.6 2214.2
Tamilnad Mercantile
18 Bank Ltd 19845 1727 36448 7.1 132.6 1274033 4581793 369346 19612.9 645.1
The Laxmi Vilas
19 Bank Ltd 0 0 0 0.0 0.0 1289102 897464 201804 3934.3 351.2
20 Yes Bank Ltd 302747 6788 997373 29.1 2691.4 1981029 3506686 2535205 13470.0 3639.5
Source: RBI annual publications

International Journal of Research in Engineering, IT and Social Sciences Page 275

Special Issue for International Conference on Business Research,
Dept of Commerce, Faculty of Science and Humanities
SRM Institute of Science & Technology, Kattankulathur, Tamilnadu.

Table 4 and 5 explains the Total Number of credit and payment components. Good infrastructure facilities will
debit cards issued outstanding, total number of encourage the customer to use payment system for fund
transactions and value of financial transactions carried transfer.
out through the credit card and debit card issued by the References
Public and Private Sector Banks at ATMs and POS  HARRIS, K. A. & ABDULLA, S. Banks Going
terminals for the month of May 2018. The empirical data Green available at http://www.
reveal that the value and volume of transactions of green mbaskool.com/business-articles/finance/899-
payments are increasing every month when compared to banks-going-green.html accessed on 12-11-11.
that of paper based payments. Low transaction fee,  Dash R. N., (2008), Sustainable Green
convenient to carry and ease of use are the major reasons Banking:The Story of Triodos Bank, Cab
that the most of the customers prefer Credit and Debit Calling October-December, 2008 available at
card payments. http://www.cab.org.in/CAB%20Calling%20
Conclusion Content/Global%20Financial%20Crisis-
The payment system and the activities of the %20A%20Stocktaking/Sustainable%20Green%
settlement institutions in India have over the years 20Banking.pdf accessed on 10-3-11.
improved significantly with the introduction of various  www.rbi.org.in.

International Journal of Research in Engineering, IT and Social Sciences Page 276

View publication stats