Only sound entities in clearing house: RBI

The Reserve Bank of India's (RBI) working group has recommended that only financially sound entities should be permitted to become members at clearing houses in MICR centres to ensure integrity of payment systems. The Indian financial sector has seen wide ranging changes in the area of payment and settlement systems. So it is imperative to review the existing membership criteria for access to payment systems so that weak entities do pose any systematic risk.

The payment services are fundamental to the economic activities and to ensure the safety, security and integrity of payment services, access to payment system should ordinarily be restricted to entities regulated by the central bank, according to the group report placed on the RBI website for public response.

The volumes and value of transactions at MICR centres is large compared to non-MICR centres, operating in smaller centres. Thus, the systemic risk posed to the system is greater in the MICR centres. Hence, membership to clearing houses at the MICR centres should be confined to licensed banks who meet financial criterion like maintaining capital adequacy of nine per cent, net non performing assets less than 10 per cent and no default in maintenance of cash reserve ratio and statutory liquidity ratio in the past one year.

The members' compliance to norms should also be periodically reviewed to ensure the continued safety and soundness of the systems, the group said.

The Banking Regulation Act permits certain entities, whose applications for licence have not yet been refused in writing by the RBI, to continue to do banking business including payment services.

However, such banks pose risks to the financial system and may need closer monitoring. Hence, such unlicenced banks may be permitted access to payment systems only as sub-members.

However, the unlicenced state co-operative banks/district central cooperative banks should be allowed due to their special position in the co-operative banking sector, it added.