RBI moots light payment system

The Reserve Bank of India (RBI) is working on a lightweight payment and settlement system (LPSS) that can be operated from anywhere with minimal manpower in the event of natural calamities and war. The system will be independent of existing payment systems such as RTGS, NEFT, and UPI.

In its annual report for 2022-23, the RBI said existing conventional payment systems are designed to handle large volumes while ensuring sustained availability. As a result, they rely on complicated wired networks supported by cutting-edge IT infrastructure.

However, events like natural calamities and war have the potential to render these systems temporarily unavailable by disrupting the underlying information and communication infrastructure. Therefore, it is prudent to be prepared to face such extreme and volatile situations.

“A resilient system can enhance public confidence in digital payments and financial market infrastructure even during extreme conditions,” the report said.

The portable system is seen as a “bunker equivalent” in payment systems and will process transactions that are critical to ensuring the stability of the economy, such as government and market-related transactions.  LPSS is expected to operate on basic hardware and software and will be made active only on a need basis, RBI bank said.

Furthermore, the system can ensure near-zero downtime of the payment and settlement system in the country and keep the liquidity pipeline of the economy intact by facilitating uninterrupted functioning of essential payment services like bulk payments, interbank payments, and provision of cash to participant institutions.

In its agenda for 2023-24, the RBI said it has put in place a “resilient framework for structured oversight of centralised payment systems Utkarsh 2.0”. The central bank has completed the internal assessment of the centralised payment systems — NEFT and RTGS — in compliance with the Principles for Financial Market Infrastructures (PFMI) standards. Based on the learnings from the assessment, a resilient framework prescribing the standards, frequency, disclosures, and other factors for the oversight of centralised payment systems will be formulated.

The central bank has extended its efforts towards enhancing the efficiency of the payments ecosystem, along with targeted initiatives focused on customer centricity, cybersecurity and digital deepening.

The RBI’s decision to bring in a new system comes at a time when digital transactions have seen a steady uptrend in recent years. 

During FY23, the payment and settlement systems grew nearly 58% in terms of transaction volume, on top of the expansion of 64% recorded in 2021-22. In value terms, the growth was 19.2% in 2022-23 as against 23.1% in 2021-22, aided by growth in the large-value payment system like real-time gross settlement.

The share of digital transactions in the total volume of non-cash retail payments rose to 99.6% in 2022-23, from 99.3% in the previous year.