Systems International Journal of Enterprise Computing and Business Systems 2230ISSN (Online) : 2230-8849
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ROLE OF INFORMATION TECHNOLOGY IN ENHANCING THE EFFECTIVE FUNCTIONING OF INDIAN FINANCIAL SYSTEM: AN EMPIRICAL STUDY
M.S.RAMARATNAM Assistant Professor (Senior Grade) Department of Management Studies SCSVMV University Enathur, Kanchipuram, Tamilnadu ,India
R.JAYARAMAN Assistant Professor Department of Management Studies SCSVMV University Enathur, Kanchipuram, Tamilnadu, India
ABSTRACT Reserve bank of India undertook important steps covering IT infrastructure and implementation of new applications to ensure safety, security, soundness, efficiency, accessibility and authorisation in the payment and settlement systems. The payment and settlement systems are the highly important arenas of the economic and financial infrastructure and contribute to the overall economic performance and financial stability by facilitating efficient financial intermediation. Indian financial system has got plenty of payment systems and products reflecting continuation of traditional paper based mode of payments along with a significant growth in a range of diverse electronic modes of payments. Technology is reason behind the developments in payment and settlement systems in India. In our nation the growth of the Technology based payment and settlement systems have been significant in recent years. The Reserve Bank of India plays critical role in harnessing the benefits of advances in Information
Systems International Journal of Enterprise Computing and Business Systems 2230ISSN (Online) : 2230-8849
http://www.ijecbs.com Vol. 1 Issue 2 January 2011
Technology (IT), both for the banking sector as a whole and its own operations. Presently the payment and settlement systems are functioning smoothly and efficiently. With the application of various advanced technologies the payment and settlement systems ensuring the timely settlement of both systemically important high value transactions and retail transactions of the public at large. An attempt has been made in this paper to find how the IT based payment and settlement systems are paving the way for the growth of Indian financial system in the recent years. Key words: IT Infrastructure, Payment and Settlement Systems, BPSS, Financial Infrastructure & Economic Performance
Introduction Reserve bank of India undertook important steps covering IT infrastructure and implementation of new applications to ensure safety, security, soundness, efficiency, accessibility and authorisation in the payment and settlement systems. The payment and settlement systems are the highly important arenas of the economic and financial infrastructure and contribute to the overall economic performance and financial stability by facilitating efficient financial intermediation. Indian financial system has got plenty of payment systems and products reflecting continuation of traditional paper based mode of payments along with a significant growth in a range of diverse electronic modes of payments. Technology is reason behind the developments in payment and settlement systems in India. In our nation the growth of the Technology based payment and settlement systems have been significant in recent years. The Reserve Bank of India plays critical role in harnessing the benefits of advances in Information Technology (IT), both for the banking sector as a whole and its own operations. Presently the payment and settlement systems are functioning smoothly and efficiently. With the application of various advanced technologies the payment and settlement systems ensuring the timely settlement of both systemically important high value transactions and retail transactions of the public at large. RBI has made a regulatory framework to facilitate the payment and settlement
Systems International Journal of Enterprise Computing and Business Systems 2230ISSN (Online) : 2230-8849
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systems by passing payment and settlement systems Act (The PSS Act), 2007. Under the PSS Act RBI has constituted an apex body, The Board for Regulation and Supervision of Payment and Settlement Systems (BPSS). The Department of payment and settlement systems (DPSS) of the Reserve Bank of India assists the BPSS in administering various provisions of the PSS Act. During the end of June 2010 BPSS has granted authorisation to 37 payment system operators of prepaid payment instruments, card schemes, cross border inward money transfers, Automated teller machines (ATM) networks and centralised clearing arrangements. Table 1.1 Showing the Payment System Indicators Annual Turnover (volume in 000s) from 2005-2010 2005-06 Systematically important payment systems (SIPS) High value clearing RTGS Total SIPS (A) Financial Markets clearing Government Securities Clearing Forex Clearing Total Financial Markets clearing (B) Others MICR clearing Non-MICR Clearing Retail electronic clearing Cards Total Others (C) 1015912 254922 83241 201772 1555847 1125373 223177 148997 229713 1727260 1201045 237600 218800 316509 1973954 1140492 233566 280610 387215 2041883 1143164 230567 971485 404379 2749595 151 490 641 167 606 773 216 757 973 270 838 1108 346 884 1230 15924 1767 17691 18730 3876 22606 21919 5840 27759 21848 13366 35214 5525 33241 38766 2006-07 2007-08 2008-09 2009-10
Systems International Journal of Enterprise Computing and Business Systems 2230ISSN (Online) : 2230-8849
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Grand Total (A+B+C) Source: Reserve Bank of India
1574179
1750639
2002686
2078205
2789591
Table 1.2 showing the comparative analysis of volume of systematically important payment systems (SIPS) in terms of percentage 2005-06 Systematically important payment 17691 systems (SIPS) % Increase Trend % Source: Computed data 100 27.78 127.78 22.79 156.91 26.86 199 10.09 219 2006-07 22606 2007-08 27759 2008-09 35214 2009-10 38766
Chart 1.1 showing the % increase of volume of systematically important payment systems (SIPS)
Chart 1.2 showing the trend of volume of systematically important payment systems (SIPS)
Systems International Journal of Enterprise Computing and Business Systems 2230ISSN (Online) : 2230-8849
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Inferences As far as systematically important payment systems (SIPS) are concerned the volume of transaction keeps on increasing over the period of 2005 to 2010. During the years, a marginal increment of 10% is found in the year 2009-10. The volume of transaction has been increased to two fold times from the year 2005-06 to 2009-10 Table 1.3 showing the comparative analysis of volume of Financial Markets clearing in terms of percentage 2005-06 Financial Markets clearing % Increase Trend % Source: Computed data 641 100 2006-07 773 20.59 120.59 2007-08 973 25.87 151.79 2008-09 1108 13.87 172.85 2009-10 1230 11.01 191.89
Chart 1.3 showing the % increase of volume of Financial Markets clearing
Systems International Journal of Enterprise Computing and Business Systems 2230ISSN (Online) : 2230-8849
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Chart 1.4 showing the trend of volume of Financial Markets clearing
Inferences
As far as financial markets clearing is concerned the volume of transaction has been increased in the increasing trend in the years 2006 and 2007, whereas the year 2008
Systems International Journal of Enterprise Computing and Business Systems 2230ISSN (Online) : 2230-8849
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and 2009 witnesses a decline in the increasing trend I.e., the volume of transaction has been increased in decreasing trend in the year 2008 and 2009 As far as the trend percentage is concerned the volume of transaction keeps on increasing at a steady pace over the period of 2005 to 2010
Table 1.4 showing the comparative analysis of volume of other Payment System Indicators in terms of percentage
2005-06 Other Payment System Indicators % Increase Trend % Source: Computed data 1555847 100
2006-07 1727260 11 111
2007-08 1973954 14.28 126.87
2008-09 2041883 3.44 131.24
2009-10 2749595 34.66 176.73
Chart 1.5 showing the % increase of volume of other Payment System Indicators
Systems International Journal of Enterprise Computing and Business Systems 2230ISSN (Online) : 2230-8849
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Chart 1.6 showing the trend of volume of other Payment System Indicators
Inferences As far as the other payment system indicators are concerned the volume of transaction has steadily increased in the year 2006, 2007 & 2009. In the year 2008 the volume of transaction shows a declining in the growth trend As far as the trend percentage is concerned the volume of transaction keeps on increasing at a steady pace over the period of 2005 to 2010 Table 1.5 showing the comparative analysis of volume of total Payment System Indicators in terms of percentage
2005-06 Payment System Indicators % Increase Trend % Source: Computed data 1574179 100
2006-07 1750639 11.21 111.21
2007-08 2002686 14.38 127.22
2008-09 2078205 3.77 132
2009-10 2789591 34.23 177.21
Systems International Journal of Enterprise Computing and Business Systems 2230ISSN (Online) : 2230-8849
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Chart 1.7 showing the % increase of volume of total Payment System Indicators
Chart 1.8 showing the trend of volume of total Payment System Indicators
Inference In case of taking total payment system indicators, it is found that except the year 2008-09 all the years have witnessed a sufficient growth interms of volume of transaction.
Systems International Journal of Enterprise Computing and Business Systems 2230ISSN (Online) : 2230-8849
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As far as the trend percentage is concerned the volume of transaction keeps on increasing at a steady pace over the period of 2005 to 2010 Table 1.6 Showing the Payment System Indicators Annual Turnover (value in Rs 000s) from 2005-2010
2005-06 Systematically important
2006-07
2007-08
2008-09
2009-10
payment systems (SIPS) High value clearing RTGS Total SIPS (A) Financial Markets clearing Government Securities Clearing Forex Clearing Total Financial 2559260 5239674 Markets 7798934 3578037 8023078 5602602 6254519 8986718 4981428 5034007 5500018 4550667 1861560
11540836 18481155 27318330 32279881 39453359 16522264 23515162 32818348 36830548 41314919
12726832 16937489 14411486
11601115 18329434 23192008 23398204
clearing (B) Others MICR clearing Non-MICR Clearing Retail electronic clearing Cards Total Others (C) Grand Total (A+B+C) Source: Reserve Bank of India 4492943 1854763 106598 39783 6494087 5401429 1606990 186160 49533 7244112 6028672 1867376 971485 70506 8938039 5849642 2060893 416419 83903 8410857 6664003 1878425 598740 89516 9230684
30815285 42360389 53357502 68433413 73943807
Systems International Journal of Enterprise Computing and Business Systems 2230ISSN (Online) : 2230-8849
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Table 1.7 showing the comparative analysis of value (Rs in 000) of systematically important payment systems (SIPS) in terms of percentage
2005-06 Systematically
2006-07
2007-08
2008-09
2009-10
important 16522264 23515162 32818348 36830548 41314919
payment systems (SIPS) % Increase Trend % Source: Computed data 100 42.32 142 39.56 199 12.23 223 12.18 250
Chart 1.9 showing the % increase of value of systematically important payment systems (SIPS)
Systems International Journal of Enterprise Computing and Business Systems 2230ISSN (Online) : 2230-8849
http://www.ijecbs.com Vol. 1 Issue 2 January 2011
Chart 1.8 showing the trend of value of systematically important payment systems
Inferences As far as systematically important payment systems (SIPS) are concerned the value of transaction has been increased in decreasing trend from the year 2006 to 2010. As far as the trend percentage is concerned the value of transaction stands at 2.5 times of base year (2005-06)
Table 1.8 showing the comparative analysis value (Rs in 000) of Financial Markets clearing in terms of percentage
2005-06 Financial Markets clearing % Increase Trend % Source: Computed data
2006-07
2007-08
2008-09
2009-10
7798934 11601115 18329434 23192008 23398204 100 48.75 149 58.00 235 26.53 297 0.89 300
Systems International Journal of Enterprise Computing and Business Systems 2230ISSN (Online) : 2230-8849
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Chart 1.9 showing the % increase of value of Financial Markets clearing
Chart 1.10 showing the trend of value of Financial Markets clearing
Inferences As far as financial markets clearing is concerned the value of transaction has been increased in the increasing trend in the years 2006 and 2007, whereas the year 2008 and 2009 witnesses a decline in the increasing trend.
Systems International Journal of Enterprise Computing and Business Systems 2230ISSN (Online) : 2230-8849
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As far as the trend percentage is concerned the value of transaction keeps on increasing at a steady pace over the period of 2005 to 2010 and it stands at three times over the base period.
Table 1.9 showing the comparative analysis of value (Rs in 000) of other Payment System Indicators in terms of percentage
2005-06 Other Payment System Indicators % Increase Trend % Source: Computed data 6494087 100
2006-07 7244112 11.55 112
2007-08 8938039 23.38 138
2008-09 8410857 -5.90 130
2009-10 9230684 9.75 142
Chart 1.11 showing the % increase of value of other Payment System Indicators
Systems International Journal of Enterprise Computing and Business Systems 2230ISSN (Online) : 2230-8849
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Chart 1.12 showing the trend of value of other Payment System Indicators
Inferences As far as the other payment system indicators are concerned the value of transaction has decreased in the year 2008-09. In the rest of the years the value of transaction shows an incremental trend As far as the trend percentage is concerned the value of transaction keeps on increasing over the period of 2005 to 2010. The increment over the period of years is not as much as high
Table 1.10 showing the comparative analysis of value (Rs in 000) of total Payment System Indicators in terms of percentage
2005-06
2006-07
2007-08
2008-09
2009-10
Systems International Journal of Enterprise Computing and Business Systems 2230ISSN (Online) : 2230-8849
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Payment System Indicators % Increase Trend % Source: computed data
30815285 42360389 53357502 68433413 73943807 100 37.47 137 25.96 173 28.25 222 8.05 240
Chart 1.13 showing the % increase of value of total Payment System Indicators
Chart 1.14 showing the trend of value of total Payment System Indicators
Inferences
Systems International Journal of Enterprise Computing and Business Systems 2230ISSN (Online) : 2230-8849
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In case of taking total payment system indicators, it is found that the value of transaction has been increased in decreasing trend over the period of 2006-2010. In 2009 & 2010 a marginal increment of 8% has been witnessed As far as the trend percentage is concerned the value of transaction keeps on increasing at a steady pace over the period of 2005 to 2010. The total value of transaction in the year 2009 & 2010 is 2.4 times over the base year of 2005-06
Table 1.11 showing the volume (%) of paper based transactions and electronic based transactions in the payment and settlement systems from 2007 to 2010
Volume Paper based transactions Electronic transactions
2007-08 72.9
2008-09 67.2
2009-10 64.7
27.1
32.8
35.3
Source: Reserve Bank of India
Chart 1.15 showing the volume (%) of paper based transactions and electronic based transactions in the payment and settlement systems from 2007 to 2010
Systems International Journal of Enterprise Computing and Business Systems 2230ISSN (Online) : 2230-8849
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Inference The above chart shows that the volume of transaction through electronic media has gained momentum during the period of 2007-2010 and it is implid that the share of paper based transaction is replaced with electronic mode of transaction
Table 1.16 showing the value (%) of paper based transactions and electronic based transactions in the payment and settlement systems from 2007 to 2010
Volume Paper based transactions Electronic transactions
2007-08 19.6
2008-09 16.1
2009-10 11.7
80.4
83.9
88.3
Source: Reserve Bank of India
Systems International Journal of Enterprise Computing and Business Systems 2230ISSN (Online) : 2230-8849
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Chart 1.16 showing the value (%) of paper based transactions and electronic based transactions in the payment and settlement systems from 2007 to 2010
Inferences As far as the value of transaction is concerned, share of electronic transactions has significantly increased from the year 2007-2010. In the contrary the value of paper based transactions declined from the year 2007 to 2010.
Conclusion Payment and settlement systems are an essential part of economic development and financial stability. Advances in information technology have made significant changes in payment channels across the globe. India, too is not the exception in using card based payments quiet some time and more recently internet and mobile phone based products and the use of these channels for transactions have been gaining popularity. Though the Indian financial system is characterised by the existence of traditional paper based mode, reforms initiated by the RBI over the period of time to introduce electronic payment products in order to ensure efficiency,
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speed and safety has brought about a significant improvement in facilitating payment and settlement systems. Yet the challenge to the RBI as a regulator is to tradeoff between innovations and integrity and safety of the payment system to uphold the interest of the users.
References [1] Nirmala Prasad. K and Chandra Bose, Banking and financial system, Himalaya publishing house, second revised edition, 2008. [2] Parameswaran.R and Natarajan.S, Indian Banking, sultan chand and sons, New Delhi,2002 [3] Saravanavel.P ,Modern Banking, Margham Publishers, Chennai, 1988 [4] Subba Rao.P, Principles and Practice of Bank Management, Himalaya publishing house, Mumbai, 1988. [5] RBI, Report on trend and progress of banking in India from 2004-05 to 2009-10 [6] RBI,Chapter IX payment and settlement systems and IT (2009) [7] RBI,Chapter IX payment and settlement systems and IT (2010)
