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November 30, 2016

Banking Awareness in Simple Language - Lesson 22

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Dear Gr8 Ambitionists, in our previous Banking Awareness Lesson 21, we have learnt about various Credit Rating Agencies in India. In today's lesson, we shall learn some important Banking Concepts. Happy Reading :)

Banking Awareness 2016 : Important Banking Concepts


CBS (Core Banking Solution)

Core Banking Solution is networking of branches, which enables customers to operate their accounts, and avail banking services from any branch of the bank on CBS network from any part of country. Even the customer is no more the customer of a branch. He becomes the Banks Customer.

CBS in India :

The initiative was taken by the banks on the basis of "First Rangaranjan Committee Report" on bank computerization submitted in the year 1984.

Syndicate Bank was the first among the Public Sector Banks to implement Core Banking. First CBS Branch of Syndicate Bank was Jayanagar branch in Bangalore.

Important Note : Full form of "CORE" in Core Banking Solution is Centralized Online Real-time Exchange

Payment and Settlement System in India


This system regulated by the Payment & Settlement Systems Act, 2007 (PSS Act), legislated in Dec 2007. The (PSS) is controlled by BPSS (Board of Regulation of Payment and Settlement Systems).

Payments are an indispensable part of our daily transactions, be it a consumer to a business, a business to a customer or a business to business. Thus it is mandatory that the payment systems of the country are "safe, secure, sound, efficient, accessible & authorize" as stated by the mission statement of the RBI publication on Payment Systems in India.

RIGS (Real Time Gross Settlement) :  

  1. Started in March 2004 
  2. It is defined as the continuous settlement of funds transfers individually on an order by order basis (without netting). 
  3. The minimum amount is Rs. 2 lakh to be transferred and no upper limit. 
  4. Services charges for RTGS Transaction :
    1. Inward Transaction : Free, no charge to be levied. 
    2. Outward Transaction : Rs. 2 lakh to Rs. 5 lakh : Rs. 30.00 + service Tax per transaction Above 5 Lakh : Rs. 55.00 + service tax per transaction 
  5. Record preservation : 10 years
  6. Settlement Cycles : 2 Hour (maximum)

NEFT (National Electronic Fund Transfer) :  

  1. Started in Nov. 2005
  2. NEFT is an electronic fund transfer system that operates on a Deferred Net Settlement (DNS) basis which settles transactions in batches
  3. No minimum and maximum limit for transaction. 
  4. Settlement period : Batch + 2 hours 
  5. Service charges for NEFT transaction : 
    • upto Rs. 10,000 
      • = Rs .2.5 per transaction + service tax 
      • > Rs. 10,000 to Rs. 1 Lac 
      • = Rs. 5 per transaction + service tax 
      • > Rs. 1 Lac to Rs. 2 Lac 
      • = 15 Rs. per transaction + service tax 
      • > Rs. 2 Lac 
      • = Rs. 25 per transaction + service tax

Note :
  • Leading Public Sector Bank, State Bank of Indore has become the first bank in the country to introduce the facility of NEFT in all its branches. 
  • Karnataka-based Corporation bank has launched National Electronic Funds Transfer (NEFT) through ATMs, the first state run bank to do so.
  • Maximum money can be remitted to Nepal by NEFT is Rs. 50,000. 

EFT (Electronic Fund Transfer) :  

EFT is the electronic transfer of money from one bank account to another, either within a single financial institution on across multiple institution, through computer based systems and without the direct intervention of bank staff. 

ECS (Electronic Clearing Service) :  

ECS is an electronic mode of payment/receipt for transactions that are repetitive and periodic in nature. ECS is used by institutions for making bulk payment of amounts towards distribution of dividend, interest, salary, pension etc. or for bulk collection of amounts towards telephone/electricity/water dues, cess/tax. Collection, loan installment repayments, periodic investments in mutual funds, insurance premium etc. 
 
ECS includes transactions processed under NACH (National Automated Clearing House) operated by NPCI (National Payments Corporation of India).

Primarily there are two variants of ECS : ECS Credit & ECS debit. 

ECS Credit :

It is used by an institution for affording credit to large number of beneficiaries (for instance, employees, investors etc) having accounts with bank branches at various locations within the jurisdiction of ECS centre by raising a single debit to bank account of the user institution. It enables payment of amount towards distribution of dividend, interest, salary, pension, etc. of the user institution. 

ECS Debit :

It is used by an institution for raising debits to a large number of accounts (for instance, consumers of utility services, borrowers, investors in mutual funds etc) maintained with bank branches at various locations within the jurisdiction of an ECS centre for simple credit to bank account of the user institution. ECS debit is useful for payment of telephone, electricity, water bills etc that are periodic or repetitive in nature & payable to the user institution by large number of customers etc.

NECS (National Electronic Clearing Service) :  

RBI inaugurated the NECS on 29 Sept 2008. The service aims to centralise the ECS operation and bring in uniformity and efficiency to the system.

NECS Credit : It would facilitate multiple credits to beneficiary accounts destination branch at participating centre against a single debit of the account of a user with the sponsor bank. 

NECS Debit : It would facilitate multiple debits to destination account holders against single credit to user account.

Note : This system is based on core banking solution of member banks.

IMPS (Immediate Payment Services) :

  1. Introduced in 2010. 
  2. It is a mobile based payment service system. 
  3. In this process, funds are transferred electronically by mobile phone services. The customers use mobile phones as a medium for transferring funds.
  4. IMPS is available for 24 x 7 
  5. IMPS is faciliated by NPCI (National Payments Corporation of India)

IFSC (Indian Financial System Code)

It is an alphanumeric code that uniquely identifies a bank branch particpating in NEFT system. This is an 11 digit code with the first 4 alpha-characters representing the bank, 5th character is 0 (zero), the last 6 characters representing the branch IFSC is used by the NEFT system to identify the originating/destination banks/branches and also to route the messages appropriately to the concerned banks/branches. 

MICR (Magnetic Ink Character Recognition)

MICR is used mainly by the banking industry to ease the processing and clearance of cheques and other documents. The MICR encoding, called the MICR line, is at the bottom of cheques and other vouchers. MICR have 9 digits- first 3 digits represent city code of the bank where bank located and next three digits represent Bank code and last 3 digits represent Bank branch code

CTS (Cheque Truncation System)

CTS in India, is a project undertaken by the RBI in 2008, for faster clearing of cheques. CTS is based on cheque truncation or online image based cheque clearing system where cheque images and Magnetic Ink Character Recognition (MICR) data are captured at the collecting bank branch and tansmitted electronically.

The RBI first implemented CTS in National Capital Region, New Delhi from 1 Feb. 2008, with ten pilot banks and the deadline was set up as 30 April 2008 for all the banks. This was followed by launch of CTS in Chennai on 24 Sept. 2011. After migration from MICR to CTS the traditional MICR based cheque processing was discontinued in NCR & Chennai. Based on the experience gained and the benefits that would accure to the customers and banks, it was decided to operationalise CTS across the country. Starting 1 August 2013 only CTS-2010 compliant cheques would be accepted for clearing.

NFS (National Financial Switch)

It was launched on 27 Aug. 2004 by IDRBT, connecting the ATMs of three banks -Corporation Bank, Bank of Baroda & ICICI Bank. NFS is the largest network of shared automated teller machines (ATMs) in India with the goal of inter - connecting the ATMs in the country and facilitating convenience banking for the average Indian. It has been run by the NPCI (National Payments Corporation of India) since 2009.

Note : The first ATM in India was setup in 1987 by the HSBC (Hong Kong and Shanghai Banking Corporation) in Mumbai. 

SFMS (Structured Financial Messaging System)

SFMS was launched on December 14, 2001 at IDRBT (Institute for Development and Research in Banking Technology). SFMS is a secure messaging standard developed to serve as a platform for intra-bank and inter-bank applications. It is an Indian Standard Similar to SWIFT (Society for World Wide Interbank Financial Telecommunication) which is the international messaging system used for financial messaging globally. SFMS can be used for secure communication within the bank and between the banks. The interbank messaging part is used by applications like EFT (Electronic Funds Transfer), RTGS (Real Time Gross Settlement), DVP (Delivery Versus Payments), CFMS (Centralized Funds Management Systems) and others.

Let's end this lesson with some important years of the evolution of Payments System in India.
  • 1780 - Introduction of cheques and payment-based clearing
  • 1981 - Andhra Bank a central Bank introduce credit cards                - 
  • 1981 - MICR based cheque processing technology introduced  
  • 1987 - First ATM was set up in India by HSBC Bank
  • 1994 - ECS for low value, bulk and recurring transactions
  • 1996 - Internet-based banking services introduced by ICICI Bank
  • 2002 - Mobile banking starts with SMS banking
  • 2004 – 2005 - RTGS and NEFT introduced for inter-bank fund transfer
  • 2008 - Cheque truncated system implemented
  • 2010 - Immediate payment service IMPS introduced initially for mobile
  • 2010-2012 - National automated clearing house NACH for interbank high Volume Payments introduced and set to replace ECS
  • 2014-2015 - Payments bank and Bharat Bill Pay system notified   
That's all for now friends. In our next Banking Awareness lesson, we shall learn about Bank Risks & Risk Management. Happy Reading :)
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