WHY OUR
COURSE!
1) 1) Save Videos offline
2) 2) Downloadable &
printable PDFs
3) 3) Weekly Revision
Class - #2019Pledge
4) 4) Sectional Tests &
Comprehensive
Mocks with All India
Ranking System
5) 5) We Check Your
English Papers.
English is the most
scoring in Phase 2.
PAYMENT AND SETTLEMENT6)
SYSTEM ACT 2007
WWW.ANUJJINDAL.IN
PAYMENT AND SETTLEMENT SYSTEM ACT 2007 WWW.ANUJJINDAL.IN SUCCESSRBI@ANUJJINDAL.IN
THE PAYMENT AND SETTLEMENT SYSTEM ACT 2007
Contents
Payment System: ..................................................................................................................... 3
Objective of Payment and Settlement Act 2007:.................................................................... 3
Netting: .................................................................................................................................... 4
Settlement Finality: ................................................................................................................. 4
REGULATIONS FORMED BY RBI ............................................................................................... 5
IMPORTANT TERMS DEFINED BY THE ACT .............................................................................. 6
Financial Market Infrastructure .............................................................................................. 7
Other Guidelines under Payment and Settlement Act 2007 .................................................. 8
PAYMENT AND SETTLEMENT SYSTEM ACT 2007 WWW.ANUJJINDAL.IN SUCCESSRBI@ANUJJINDAL.IN
Payment System:
A payment system is any system which is used to settle financial transactions through the
transfer of monetary value
Payment
system
Traditional Electronic
payments payments
Negotiable Electronic
instruments Fund Transfer
Cheque, Internet
Drafts Banking
Objective of Payment and Settlement Act 2007:
• The payment and Settlement Act 2007 got president assent on 20 December 2007 and
it came into force with effect from 12 August 2008
• The PSS Act, 2007 provides for the regulation and supervision of payment systems in
India and designates the Reserve Bank of India as the authority for that purpose and
all related matters.
• The Reserve Bank is authorized under the Act to constitute a Committee of its
Central Board known as the Board for Regulation and Supervision of Payment and
Settlement Systems (BPSS), to exercise its powers and perform its functions and
discharge its duties under this statute.
• The Act also provides the legal basis for “netting” and “settlement finality”. This is of
great importance, as in India, other than the Real Time Gross Settlement (RTGS)
system all other payment systems function on a net settlement basis.
PAYMENT AND SETTLEMENT SYSTEM ACT 2007 WWW.ANUJJINDAL.IN SUCCESSRBI@ANUJJINDAL.IN
Netting:
• Netting entails offsetting the value of multiple positions or payments due to be
exchanged between two or more parties. It can be used to determine which party is
owed remuneration in a multiparty agreement.
Settlement Finality:
• The means of protecting payments “in transit” against the insolvency of one of the
Financial institutions on either side of the payment transaction is provided via their
designation under the relevant Settlement finality Regulations.
PAYMENT AND SETTLEMENT SYSTEM ACT 2007 WWW.ANUJJINDAL.IN SUCCESSRBI@ANUJJINDAL.IN
REGULATIONS FORMED BY RBI
Regulations formed by
RBI
Board for Regulations and
Payment and
Supervision of Payment and
Settlement System
Settlement System
Regulations 2008
Regulations 2008 (BPSS)
composition of Cover matters furnishing of
Constitution of like application account and
board for BPSS board, powers
and functions, for balance sheet
which includes commencing, and standard
RBI directors meetings ,
quorum etc. payment of payments
instructions
PAYMENT AND SETTLEMENT SYSTEM ACT 2007 WWW.ANUJJINDAL.IN SUCCESSRBI@ANUJJINDAL.IN
IMPORTANT TERMS DEFINED BY THE ACT
SECTION 2(1) OF THE Payment and Settlement System Act 2007 defines the following
terms:
Payment obligation” is defined as what is owed by one participant in a payment
system to another such participant which results from clearing or settlement or
Payment payment instructions
Obligation
• Payment Instruction” is defined as any instrument, authorization or order in
any form, including by electronic means, to effect a payment by a person to a
participant in a payment system or from one participant in such a system to
another participant in that system.
Payment • The payment instruction can be communicated either manually i.e. through an
Instruction instrument like a cheque draft, payment order etc. or through electronic
means, so that a payment can be made by either a person to the participant in
such a system or between two participants.
Settlement” means the settlement of payment instructions received and these
include settlement of securities, foreign exchange or derivatives or other
Settlement transactions. Settlement can take place either on a net basis or on a gross basis.
• Section 2(1) (i) of the PSS Act 2007 defines a payment system to mean a system
that enables payment to be effected between a payer and a beneficiary,
involving clearing, payment or settlement service or all of them.
• But does not include a stock exchange (Section 34 of the PSS Act 2007 states
Payment System that its provisions will not apply to stock exchanges or clearing corporations set
up under stock exchanges).
• “payment system” includes the systems enabling credit card operations, debit
card operations, smart card operations, money transfer operations or similar
operations.
• All systems (except stock exchanges and clearing corporations set up under
stock exchanges) carrying out either clearing or settlement or payment
operations or all of them are regarded as payment systems. All entities
operating such systems will be known as system providers.
• All entities operating money transfer systems or card payment systems or
similar systems fall within the definition of a system provider.
A sum of Rs 10,000/- is required to be submitted as application fee, which can be
submitted by cash or cheque or payment order or demand draft or electronic fund
Application fee for
transfer in favour of the Reserve Bank.
authorization
PAYMENT AND SETTLEMENT SYSTEM ACT 2007 WWW.ANUJJINDAL.IN SUCCESSRBI@ANUJJINDAL.IN
License requirement In terms of Section 4 of the PSS Act 2007, no person other than the Reserve Bank
can operate or commence a payment system unless authorized by the Reserve
Bank.
Are foreign entities Yes. The PSS Act 2007 does not prohibit foreign entities from operating a payment
allowed to operate a system in India and the Act does not discriminate/differentiate between foreign
payment system in India? entities and domestic entities.
Are foreign entities Yes. All entities, irrespective of domestic or foreign, need to obtain license/
required to get a license? approval / authorization from Reserve Bank before commencing payment system
operations in India.
Financial Market Infrastructure
Introduction:
• Financial Market Infrastructure (FMI) is defined as a multilateral system among
participating institutions, including the operator of the system, used for the purposes of
clearing, settling, or recording payments, securities, derivatives, or other financial
transactions.
Can a foreign Financial Yes. The PSS Act 2007 does not prohibit foreign entities from
Market operating a payment system in India. The Act does not
Infrastructure(FMI) discriminate/differentiate between foreign entities and domestic
start operations in entities.
India?
What are the services The PSS Act does not place any restriction on the types of payment
which a foreign entity systems / services a foreign entity can provide. However, any service
can provide provided by a domestic or foreign entity must be in accordance with
the overall legal framework of the country.
PAYMENT AND SETTLEMENT SYSTEM ACT 2007 WWW.ANUJJINDAL.IN SUCCESSRBI@ANUJJINDAL.IN
Factors which the RBI • The Reserve Bank will consider factors like the need for the
will see for approval proposed payment system
• The security procedures and terms and conditions of operation
of the proposed system.
• The procedure for netting of payment instructions, risk
management processes, financial status of the applicant,
experience of management and integrity of applicant, consumer
interests, monetary and credit policies.
The parameters taken • Application for authorisation of a payment system operator is
into consideration for assessed against the criteria specified for a particular payment
giving authorisation to system.
the applicants • For example, the application for issuance and operation of PPI is
assessed against the Policy Guidelines on Issuance and Operation
of Pre-paid Payment Instruments in India.
• The Reserve Bank may make such inquiries as it may consider
necessary for the purpose of satisfying itself the capacity,
credentials of the participants or for any other valid reason.
Authority to refuse Yes, the Reserve Bank can refuse to grant authorization under the
PSS Act, 2007. However, the Reserve Bank has to give a written notice
to such an applicant giving the reasons for refusal and also a
reasonable opportunity of being heard
Aggrieved system provider can appeal to the Central Government
within 30 days from the date on which the order of refusal or
Appellate authority revocation is conveyed to him
Other Guidelines under Payment and Settlement Act 2007
• Section 24 of Act :
The Act lays down an elaborate mechanism for settlement of disputes between system
participants in a payment system, between system participant and system provider and
between system providers.
PAYMENT AND SETTLEMENT SYSTEM ACT 2007 WWW.ANUJJINDAL.IN SUCCESSRBI@ANUJJINDAL.IN
• Section 25 of the Act: dishonour of an electronic fund transfer instruction due to
insufficiency of funds in the account etc., is an offence punishable with imprisonment or
with fine or both, similar to the dishonour of a cheque under the Negotiable Instruments
Act 1881. Subject to complying with the procedures laid down under the PSS Act, 2007,
criminal prosecution of defaulter can be initiated in such cases. This provision was
introduced to discourage dishonour of electronic payment instructions.
PAYMENT AND SETTLEMENT SYSTEM ACT 2007 WWW.ANUJJINDAL.IN SUCCESSRBI@ANUJJINDAL.IN
PAYMENT AND SETTLEMENT SYSTEM ACT 2007 WWW.ANUJJINDAL.IN SUCCESSRBI@ANUJJINDAL.IN
PAYMENT AND SETTLEMENT SYSTEM ACT 2007 WWW.ANUJJINDAL.IN SUCCESSRBI@ANUJJINDAL.IN
