Toning up payment, settlement in banking

By Our Special Correspondent

CHENNAI, JAN. 8. Ensuring improvement in the efficiency of the payment and settlement system in the banking industry is among the emerging tasks before the country's central bank, according to Dr. A. Vasudevan, Honorary Adviser to the Reserve Bank of India.

The huge amount of ``dirty float'' arising from delays in effecting transfers of instruments like outstation cheques and buying and selling of government securities, and delays in inter- bank clearing and settlement undermined the effectiveness of monetary policy and also increased transaction costs, Dr. Vasudevan said here today.

Speaking on ``Central banking yesterday, today and tomorrow'' under the auspices of the Madras School of Economics (MSE), Dr. Vasudevan said several countries had adopted techniques like having a special channel for clearance and settlement of large volume (amount) cheques and real time gross settlements to reduce the payment float which hurt somebody or the other in the transaction chain.

Ensuring digital security, adoption of contemporary messaging standards, staff training and dissemination of manuals across departments and branches would be required if information technology (IT) was to be used to reduce the dirty float.

Dr. Vasudevan felt that ensuring transparency in respect of the policies and practices of the central banking authority was another task but a certain amount of confidentiality or opaqueness would be necessary for the bank's strategies to have the intended effect.

While several countries left to the central bank the task of inflation targeting and achieving price stability, in India, as in the case of the US Federal Reserve, the bank was also expected to take care of needs of economic growth. In some countries like the UK, a Financial Supervisory Authority keeping watch over monetary, securities, insurance and other markets had been set up, while in some others, including Hong Kong and Aregentina, a partial roll-back to the Currency Board model was being adopted.

In the past 15 years, central banks of developed countries had by and large achieved the objective of price stability but it was an irony that in the same period volatility had grown sharply in the foreign exchange markets, Dr. Vasudevan said.

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- Corporate Bureau

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