4. Risk Mitigation in Payment Systems
Safe, secure and efficient payment systems are critical to the effective
functioning of the financial systems. Payment Systems face various risks like
credit, liquidity, legal, operational and settlement risks. However, systemic
risks by far outweigh other types of risks. In case of systemically important
payment systems, failure of one or more participants could have a domino
effect, leading to settlement failures in other payment systems, thereby
threatening stability of the entire financial system. Over the past few years an
international consensus has developed on the need to strengthen the
payment systems by promoting and adopting internationally accepted
standards and practices. The Committee on Payment and Settlement
Systems of the G-10 countries (CPSS) set up under the auspices of the Bank for International Settlements (BIS) has formulated best practices in the form of
Core Principles for Systemically Important Payment Systems (SIPS). The
CPSS has also specified the responsibilities of the central banks with regard
to the payment systems in their respective countries.
India has, by March 2004, made all the systemically important payment
systems (SIPS) compliant with the Core Principles, except the Inter-bank
Clearings at places other than Mumbai and the High Value Clearing Systems.
There is a need to complete this process in the near future.
Keeping the above in view, it is proposed to initiate the following steps
towards risk mitigation in payment systems during 2005-08:
Action Points:
To address Systemic Risks:
1. Interbank transactions at all places to be migrated to RTGS System
2. High Value Clearing Systems to be made secured netting systems by
introduction of guarantee funds
To address Liquidity Risks:
1. Implementation of National Settlement System for posting the net
position of the clearing participants in all clearing houses in the country.
To address Operational and Legal Risks:
1. For enhanced security of messages, PKI based digital signatures to be
introduced.
2. Credit transfers to be encouraged and in electronic mode
3. Provide for high availability of all systems
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