Computerisation of Clearing and Settlement Operations

Articles / General Information

5.1. Computerisation of clearing operations was the first major step towards modernisation of the payments system³. The introduction of technology for clearing operations began with the setting up of ‘Claim Based Settlement System’ using Microprocessor based computer systems at Mumbai, Chennai and Delhi, in the early eighties. These systems were used for generating settlement reports on the basis of input statements containing the aggregate value of (cheques presented) claims of one bank over the other banks in the clearing house. Clearing balancing and settlement, which used to take a long time due to differences and errors in manual balancing, were reduced, apart from providing accuracy in the final settlement.


5.2. The next important milestone was fully automating the clearing operations. The rapid growth of cheque volumes in the eighties made the task of manual sorting and listing a very difficult task. Banks were unable to cope with the huge volume of cheques which had to be physically handled prior to their presentation in the
clearing house. Though the clearing settlement became easy because of computerisation, the heavy volumes of paper that had to be processed introduced delays in presentation resulting in delayed credit to the customers. The growth in the volumes could therefore, be managed only by mechanisation of the entire clearing process.


5.3. The solution was the introduction of Magnetic Ink Character Recognition (MICR) based mechanised cheque processing technology. The existing cheques had to be redesigned incorporating a MICR codeline⁴ which could be read by document processing machines called reader-sorters. The RBI introduced two types of reader-sorters – the Medium Speed Reader Sorters, capable of processing 300 instruments per minute for Inter-city instruments and the High Speed Reader Sorter Systems (HSRS) with speeds of 2400 documents per minute, for the clearing of local instruments. Driven by mainframe computers the HSRS systems were the state-of-the-art systems available at that time. These were installed in Mumbai (1986) followed by Chennai, New Delhi, (1987) and Calcutta(1989). By the middle of 1989 MICR cheque clearing operations in the four metropolitan cities had become fully operational and stabilised.

3 Several committees of the Reserve Bank recognised the importance of reforms in the clearing systems and underscored the need for computerisation on a priority basis. (See Annexure for details).

4 MICR Codeline contains basic cheque information in designated fields for data capture and mechanical sorting of the cheques. The codeline is both pre-printed and later encoded using special MICR ink, using standardised E13B Font.

5.4.
Inter-city clearing: The four metropolitan centres viz., Mumbai, New Delhi, Calcutta and Chennai are covered by two way inter-city clearing. The other offices of the RBI are connected with these four centres under one way inter-city clearing. Under this system, inter-city cheques drawn on any of the metropolitan centres are
processed at the MICR clearing and are sent to the drawee centre by postal courier where they are integrated with the local clearing of that centre. This National Clearing has sharply reduced the time taken for realisation of these cheques.

5.5.
Regional Grid Clearing operations: As a logical step towards extension of Inter-city clearing at all the major cities, a regional grid clearing was introduced in a small way. Important commercial centres/district headquarters in a region were connected for one way clearing with the nearest MICR centre. Thus, cities such as Coimbatore, Madurai, Pondicherry were linked to Chennai, Pune and Vadodara to Mumbai, Asansol and Jamshedpur to Calcutta etc. The benefits of reduced time for inter-city clearing was thus extended to such cities too.

5.6.
Clearing houses managed by the RBI: The settlement operations in all non-MICR based clearing centres managed by the RBI viz., the clearing houses at Ahmedabad, Kanpur, Bangalore, Hyderabad, Nagpur, Patna, Jaipur, Thiruvananthapuram, Guwahati and Bhubaneshwar were also computerised by the introduction of a magnetic media based input settlement software package, developed in-house. The clearing data from the banks aggregated as receivables, are submitted in floppies to the clearing house and settlement is carried out.

5.7. The magnetic media based input settlement represents an intermediate step towards complete automation of cheque clearing through MICR processing and enables banks and the clearing house to get accustomed to a computerised environment. The system has been in operation for nearly four years and is functioning satisfactorily. It covers presentation clearing,
return clearing, High Value/High Value return clearings and inter-bank clearing but does not cover inter-city clearing.

5.8.
High Value clearing: High value clearing is a value added service. In this clearing select branches located in a central business/commercial area and in the vicinity of the Clearing House/Service Branches of banks present instruments with a face value of Rs.100,000/- and above deposited by their customers within a specified cut-off time, to the clearing house. The instruments are dropped into the respective receptacles of the drawee banks and settlement is carried out through floppy based input statement. The return clearing is held before close of banking hours on the same day. In 1994, the total value of instruments presented in this clearing at the 4 metros was Rs.522,871 crores. By 1997, this had gone up to Rs.949,502 crores. (1 crore is equivalent to 10 million)

5.9. High value clearing enables a customer who deposits a cheque on day 1 to withdraw the amount on day 2 itself, provided, there is no return. High value clearing is therefore, faster compared to regular MICR clearing where credit is afforded on Day 2 and withdrawals are permitted on Day 3, after the Return discipline cycle is completed. High value clearing was first introduced in Chennai in April 1989, and was then extended to Mumbai, Calcutta and New Delhi respectively. It has since been extended to Ahmedabad, Bangalore, Hyderabad, Jaipur and Kanpur. The 5 remaining RBI managed clearing centres are likely to introduce high value clearing shortly.

5.10. Inter-bank Clearing: Inter-bank payments are usually settled among banks by issuing cheques drawn on their accounts with Reserve Bank of India. This practice
resulted in a large number of cheques being presented to Deposit Accounts Department (DAD) of the Reserve Bank, leading to heavy work pressures throughout the day. It was therefore, decided to start a separate Inter-bank clearing. In the Inter-bank clearing banks no longer use the RBI cheques to settle their claims against each other. Instead, they use their own Bankers Cheques. The settlement is carried out through Floppy Based input statements, submitted to the Clearing House. The pay orders are however, dropped in the designated receptacles, from where they are collected by banks’ representatives. Since there is no return for these instruments, the credit / debit is instantaneous.

5.11. Inter-bank clearing is used by banks mainly for four types of transactions: call money transactions, Rupee payment of foreign currency transactions, Bank to Bank transfers for funding upcountry requirements and Inward remittances. Inter-bank clearing was introduced in Chennai in April 1989, followed by Mumbai, Calcutta and New Delhi. This clearing which is basically a debit clearing has been converted into a credit clearing at Chennai from 1996 onwards. Instead of bankers’ cheques, banks generate credit advices using a software provided to them by the Reserve Bank and settlement is effected at the Clearing House on the basis of the consolidation of the credit data furnished by all the member banks. This has been rendered possible due to computerisation of all the service branches in Chennai.

5.12. Computerisation of service branches which accompanied the computerisation of the clearing houses (both MICR and Floppy based) at banking centres with large volumes of business has resulted in the creation of a base for the introduction of automated clearing operations at other centres. This has also enabled the introduction of electronic payments services on an experimental basis so that future expansion of these services using the clearing infrastructure is possible. However, there is a lot of scope for developing backward and forward linkages to fully utilise the advantage of the item-wise data base created by the MICR cheque processing.

No commentsRead more

Tips On Getting Hired For A Job

Articles / General Information / Resume

• Create a resume that is unique and attractive. Employers scan through thousands of resumes every day. Therefore, your resume should be the one that catches the eye. The resume should be such that it acts as a flag bearer of your achievements and capabilities. Remember, the basic aim of sending across the resume is to get noticed.
• Learn about the company or the organization where you are applying for the job. Collect details from their website and learn everything related to their organizational structure and work policy. Do a little research on the web so that you have a basic idea of what the company is all about.
• It is better to focus on one or two companies at a time and research on them thoroughly. This will be far more worthwhile than sending your resume to each and every company that you come across.
• Dress impressively. Your dressing should convey your discipline, reliability and responsibility. You should create a professional image so that the employer feels that you can manage your responsibilities well. Don’t forget that first impression counts a lot.
• Be proactive in your approach. Instead of leaving your resume at the desk or with some other employee, it is better if you ask to meet the manager. This will show your commitment towards getting the job and you will be looked more favourably than others.
• Don’t go into lengthy explanations about yourself and your achievements unless told to do so. Be brief but to the point. Generally, employers do not give much time to the interviewee. Make sure that you manage to put across your point in whatever time you get. 
• Show your passion for the work profile and the company. In this, your research into the company will come in very handy. Explain to them why you like their organization and why the particular work profile attracts you. Employers most likely hire someone who has a basic and fundamental idea of the company’s work and ethics and is also passionate about it.
• Persistency is the basic key on getting hired. Contact the person through phone, email and such. Don’t let the first rejection deter you. Most companies have a policy of a minimum three month gap after the first interview, post which the candidates can try for the next time. Even if the first interview fails, establish contact and maintain a relationship with the concerned person. In this way, you can have a far better success the next time.

No commentsRead more

Evolution of Payment Systems in India

Articles / General Information

2.1. Payment instruments and mechanisms have a very long history in India. The earliest payment instruments known to have been used in India were coins, which were either punch-marked or cast in silver and copper. While coins represented a physical equivalent, credit systems involving bills of exchange facilitated inter-spatial transfers.

Figure 2.1. Early Punchmarked coin

(Courtesy – Museum Cell, RBI)

2.2. In ancient India, loan deed forms called rnapatra or rnalekhya were in use. These contained details such as the name of the debtor and the creditor, the amount of loan, the rate of interest, the condition of repayment and the time of repayment. The deed was witnessed by a person of respectable means and endorsed by the loan-deed writer. Execution of loan deeds continued during the Buddhist period, when they were called inapanna.


2.3. In the Mauryan period, an instrument called adesha was in use, which was an order on a banker desiring him to pay the money of the note to a third person, which corresponds to the definition of a bill of exchange as we understand it today. During the Buddhist period, there was considerable use of these instruments. Merchants in large towns gave letters of credit to one another. There are also numerous references to promissory notes.


2.4. The loan deed continued into the Mughal period. The deeds were called dastawez and were of two types: dastawez-e-indultalab which was payable on demand and dastawez-e-miadi which was payable after a stipulated time.


2.5. In the Mughal period, we have the testimony of foreign travellers regarding the use of bills of exchange in the then great commercial centres. From their writings, it may be noted that Indian bankers also issued bills of exchange on foreign countries, mainly for financing sea-borne trade. These bills were widely accepted and were traded at high discounts, as the discounts included the insurance premium covering the risk representing safe arrival of goods.


2.6. Another instrument in use during the Muslim period was the Pay order. Pay orders were issued from the Royal Treasury on one of the District or Provincial treasuries. They were called Barattes and were akin to present day drafts or cheques.


2.7. The most important class of credit Instruments that evolved in India were termed Hundis. Their use was most widespread in the twelfth century, and has continued till today. In a sense, they represent the oldest surviving form of credit instrument. Hundis were used

	* as remittance instruments (to transfer funds from one place to another)
	* as credit instruments (to borrow money [IOUs])
	* for trade transactions (as bills of exchange)

Figure 2.2. Nineteenth century Period Hundi

(Courtesy – Museum Cell, RBI)

2.8. Hundis were of various kinds and each type had
certain distinguishing features.

Darshani Hundi : This was a demand bill of exchange, payable on presentation according to the usage and custom of the place. These were mainly of four types.

A] Sah-jog – was a hundi transferable by endorsement and delivery but payable only to a Sah or to his order. A Sah was a respectable and responsible person, a man of worth and substance who was known in the market.

B] Dhanni-jog – was a demand bill of exchange payable only to the dhanni, i.e. the payee. This hundi was not negotiable.

C] Firman-jog - hundis came into existence during the Muslim period. Firman is a Persian word meaning order and therefore, firman-jog hundis were payable to the order of the person named. These hundis could be negotiated with a simple or conditional endorsement.

D] Dekhavanhar – hundi was a bearer demand bill of exchange payable to the person presenting it to the drawee. Thus it corresponded to a bearer cheque.

Muddati Hundi : This is a usance bill and is payable after stipulated time or on a given date or on a determinable future date or on the happening of a certain stipulated event. Muddati hundis of Sah-jog, dhanni-jog and firman-jog types had the same features as those attached to the same types of darshani hundis. However, the most important type of muddati hundi was the jokhami hundi, which was a documentary bill of exchange corresponding to the present day bill of lading. This had been in use for centuries and payment was conditional on the safe arrival of goods.

2.9. The princely states of India had their own distinct coins. An example of this was the Arcot Rupee coin struck
by the Nawab of Arcot in the Madras Presidency. By 1740, the Europeans had secured the privilege of coining this rupee, and the coins came to be known as English, French and Dutch arcots. In 1835, the East India Company introduced the Company’s Rupee to bring about uniformity of coinage over British India.

2.10. Paper money, in the modern sense, has its origin in the late 18th century with the note issues of private banks as well as semi-government banks. Amongst the earliest issues were those by the Bank of Hindoostan, the General Bank in Bengal and Behar, and the Bengal Bank. Later, with the establishment of three Presidency Banks, the job of issuing notes was taken over by them. Each Presidency Bank had the right to issue notes within certain limits. The Bank of Bengal notes generally circulated within the environs of Calcutta and were mainly used for effecting large transactions. The largest proportion of the Bank of Bengal notes consisted of notes of Rs.100 and upwards. The notes sometimes bore a small premium, so great was the public confidence in the bank. The Paper Currency Act of 1861 conferred upon the Government of India the monopoly of Note Issue bringing to an end note issues of private and Presidency Banks.

2.11. The private banks and the Presidency Banks introduced other payment instruments in the Indian money market. Cheques were introduced by the Bank of Hindoostan, the first joint stock bank established in 1770.

2.12. Post Bills were introduced by the British in 1827. These were Inland Promissory notes issued by the bank on a distant place, the holder of which would be paid on acceptance after a specified number of days (seven days’ sight or thirty days’ sight) and were similar to muddati hundis. These bills had a much smaller currency than bank
notes, mainly because the government refused to authorise their receipt in payment of public dues. They were mainly used by European businessmen for purposes of internal remittances.

2.13. In 1833, cash credit accounts were added to the Bank of Bengal’s array of credit instruments. The bank used to grant loans against the security of Company’s paper, bullion, plate, jewels or goods of non-perishable nature or goods not liable to great alteration in their value up to a limit of 1 lakh sicca rupees.

2.14. Buying and selling bills of exchange became one of the items of business to be conducted by the Bank of Bengal from 1839.

2.15. In 1881, the Negotiable Instruments Act (NI Act) was enacted, formalising the usage and characteristics of instruments like the cheque, the bill of exchange and promissory note. The NI Act provided a legal framework for non-cash paper payment instruments in India.


2.16. With the steady growth in volumes of trade and commerce and the growing confidence of the public in the usage of cheques etc., transactions through the use of these payment instruments grew at a rapid pace. Bank employees had to frequently walk to other banks, collect cheques and drafts, and present them to drawee banks and collect cash over the counter. There was danger of loss in transit of the instruments. Besides, such methods could only serve for limited volumes of instruments. With the development of the banking system and higher turnover in the volume of cheques, the need for an organised cheque clearing process emerged amongst the banks. Clearing associations were formed by the banks in the Presidency towns and the final settlement between member banks was effected by means of cheques drawn
upon the Presidency Banks. With the setting up of the Imperial Bank in 1921, settlement was done through cheques drawn on that bank.

2.17. The Calcutta Clearing Banks’ Association, which was the largest bankers’ association at that time, adopted clearing house rules in 1938. The association had twenty-five large banks as its members and eight sub-members. There were two ordinary clearings on each business day, except on Saturday when there was one clearing. However, the association did not cover many banks functioning in Calcutta. The cheques, drafts etc. of such non-clearing banks were collected by the clearing banks only on payment of charges. This affected their business prospects adversely, as the public was not likely to maintain accounts with banks whose cheques suffered a serious handicap of market acceptability. To overcome this problem, these banks formed themselves into a group called the Metropolitan Banking Association with fifty members, which conducted the Metropolitan Clearing House, in 1939. This association arrived at an understanding with the Calcutta Clearing House in 1940. In addition, two other clearings were conducted in Calcutta – the Pioneer clearing and the Walks Clearing.

2.18. The Bombay Clearing House was the only association to conduct clearings in Bombay. It had no parallel systems/institutions comparable to the Metropolitan Clearing House of Calcutta. The uniform procedures and charges for collection of non-clearing banks’ cheques, drafts, dividend warrants etc. were adopted by the Bombay Clearing House in 1941-42.

2.19. After the setting up of Reserve Bank of India under the RBI Act 1935, the Clearing Houses in the Presidency towns were taken over by Reserve Bank of India.

No commentsRead more