Unit - IV

Payment & Settlement System in India

Meaning and Importance

Payment
Payment is the voluntary transfer of money, equivalent, or other valuable items from
one person to another in exchange for goods or services received or to meet a legal obligation.
The person who gives the money is often called the payer, while the person who gets the
money is called the payee.
What is Payment?
Payment is the exchange of money, goods, or services for goods and services in an
acceptable amount to both parties and has been agreed upon in advance. You can pay with
cash, a check, a wire transfer, a credit card, a debit card, or even crypto currency.
What is Settlement?
Payment and Settlement Systems in India are used for financial transactions. They are
covered by the Payment and Settlement Systems Act of 2007 (PSS Act), legislated in
December 2007 and regulated by the Reserve Bank of India and the Board for Regulation and
Supervision of Payment and Settlement Systems.
Settlement systems – securities infrastructures – refer to multilateral arrangements and
systems that are used for the clearing, settlement and recording of payments, securities,
derivatives or other financial transactions. Securities settlement systems are used for post-trade
processing.

Payment and settlement system in India

Online Banking

With online banking, consumers aren't required to visit a bank branch to complete most
of their basic banking transactions. They can do all of this at their own convenience, wherever
they want—at home, at work, or on the go. Online banking requires a computer or other
device, an Internet connection, and a bank or debit card. In order to access the service, clients
need to register for their bank's online banking service. In order to register, they need to create
a password. Once that's done, they can use the service to do all their banking. Banking
transactions offered online vary by the institution. Most banks generally offer basic services
such as transfers and bill payments. Some banks also allow customers to open up new
accounts and apply for credit cards through online banking portals. Other functions may
include ordering checks, putting stop payments on checks, or reporting a change of address.
Checks can now be deposited online through a mobile app. The customer simply enters
the amount before taking a photo of the front and back of the check to complete the deposit.
Online banking does not permit the purchase of traveler's checks, bank drafts, certain wire
transfers, or the completion of certain credit applications like mortgages. These transactions
still need to take place face-to-face with a bank representative.

National Electronic Funds Transfer (NEFT)

National Electronic Funds Transfer (NEFT) is a nation-wide payment system
facilitating one-to-one funds transfer. Under this Scheme, individuals, firms and corporates
can electronically transfer funds from any bank branch to any individual, firm or corporate
having an account with any other bank branch in the country participating in the Scheme.
Individuals, firms or corporates maintaining accounts with a bank branch can transfer funds
using NEFT. Even such individuals who do not have a bank account (walk-in customers) can
also deposit cash at the NEFT-enabled branches with instructions to transfer funds using
NEFT. However, such cash remittances will be restricted to a maximum of Rs.50,000/- per
transaction. NEFT, thus, facilitates originators or remitters to initiate funds transfer
transactions even without having a bank account. Presently, NEFT operates in hourly batches -
there are twelve settlements from 8 am to 7 pm on week days (Monday through Friday) and
six settlements from 8 am to 1 pm on Saturdays.

Real Time Gross Settlement (RTGS)

RTGS is defined as the continuous (real-time) settlement of funds transfers individually
on an order by order basis (without netting). 'Real Time' means the processing of instructions
at the time they are received rather than at some later time; 'Gross Settlement' means the
settlement of funds transfer instructions occurs individually (on an instruction by instruction
basis). Considering that the funds settlement takes place in the books of the Reserve Bank of
India, the payments are final and irrevocable. The RTGS system is primarily meant for large
value transactions. The minimum amount to be remitted through RTGS is 2 lakh. There is no
upper ceiling for RTGS transactions. The RTGS service for customer's transactions is
available to banks from 9.00 hours to 16.30 hours on week days and from 9.00 hours to 14:00
hours on Saturdays for settlement at the RBI end. However, the timings that the banks follow
may vary depending on the customer timings of the bank branches.

Electronic Clearing System (ECS)

ECS is an alternative method for effecting payment transactions in respect of the utility-
bill-payments such as telephone bills, electricity bills, insurance premia, card payments and
loan repayments, etc., which would obviate the need for issuing and handling paper
instruments and thereby facilitate improved customer service by banks / companies /
corporations / government departments, etc., collecting / receiving the payments.

Mobile Banking
Mobile banking is the act of making financial transactions on a mobile device (cell
phone, tablet, etc.). This activity can be as simple as a bank sending fraud or usage activity to a
client’s cell phone or as complex as a client paying bills or sending money abroad. Advantages
to mobile banking include the ability to bank anywhere and at any time. Disadvantages include
security concerns and a limited range of capabilities when compared to banking in person or
on a computer.
 Unit - V
Bankers and Customers

Concept of Deposit Account

A deposit is a financial term that means money held at a bank. A deposit is a transaction
involving a transfer of money to another party for safekeeping. However, a deposit can refer to
a portion of money used as security or collateral for the delivery of a good.

Types of Account
Whether you are a housewife or a college student, a business owner or a business
house, a retired professional or Indian living abroad, not having a bank account is
unimaginable. Based on the purpose, frequency of transaction, and location of the account-
holder, banks offer a bouquet of bank accounts to choose from. Here is a list of some of the types
of bank accounts in India.

1. Current account
A current account is a deposit account for traders, business owners, and entrepreneurs,
who need to make and receive payments more often than others. These accounts hold more
liquid deposits with no limit on the number of transactions per day. Current accounts allow
overdraft facility, that is withdrawing more than what is currently available in the account.
Also, unlike savings accounts, where you earn some interest, these are zero-interest
bearing accounts. You need to maintain a minimum balance to be able to operate current
accounts.

2.Savings account
A savings bank account is a regular deposit account, where you earn a minimum rate of
interest. Here, the number of transactions you can make each month is capped. Banks offer a
variety of Savings Accounts based on the type of depositor, features of the product, age or
purpose of holding the account, and so on.

There are regular savings accounts, savings accounts for children, senior citizens or
women, institutional savings accounts, family savings accounts, and so many more.
 You have the option to pick from a range of savings products. There are zero-balance
savings accounts and also advanced ones with features like auto sweep, debit cards, bill
payments and cross-product benefits.

A cross-product benefit is when you have a savings account with a bank and get to avail
special offers on opening a second account such as a demat account.

3. Fixed deposit account

To park your funds and earn a decent rate of interest on it, there are different types of
accounts like fixed deposits and recurring deposits. A fixed deposit (FD) account allows you
to earn a fixed rate of interest for keeping a certain sum of money locked in for a given time,
that is until the FD matures. FDs range between a maturity period of seven days to 10 years.
The rate of interest you earn on FDs will vary depending on the tenure of the FD. Generally,
you cannot withdraw money from an FD before it matures. Some banks offer a premature
withdrawal facility. But in that case, the interest rate you earn is lower

4. Recurring deposit account

A recurring deposit (RD) has a fixed tenure. You need to invest a fixed sum of money
in it regularly -- every month or once a quarter -- to earn interest. Unlike FDs, where you need
to make a lump sum deposit, the sum you need to invest here is smaller and more frequent.
You cannot change the tenure of the RD and the amount to be invested each month or quarter.
Even in the case of RDs, you face a penalty in the form of a lower interest rate for premature
withdrawal. The maturity period of an RD could range between six months to 10 years.

Types of Account according to customer

1) Minor Account

Any person below the age of 18 years is considered a minor. These days, many banks
offer the facility of opening accounts, often called 'minor' accounts, specifically designed for
children.
 This type of banking account does allow the minor to make withdrawals and deposits,
but does not provide all privileges allowed a normal account. No maintenance fees typically
apply until the minor becomes 18 years old. Some banks require a primary account link to a
minor’s account to make the adult accountable for any improper minor account use.

2) Joint Account

A joint account is a bank or brokerage account shared between two or more

individuals. Joint accounts are most likely to be used by relatives, couples, or business
partners who have a level of familiarity and trust with each other.

Joint accounts can be helpful in their holders and provide several benefits. Many funds
require minimum balances, particularly if the holder wants to access the benefits of a specific
account type. By pooling their money, two people can bypass this requirement and reap the
benefits of the account. Opening a joint account may also be helpful to newer couples who are
combining their finances. Couples may find it easier to have a single account into which they
can deposit their paychecks and make payments for their rent or mortgage, bills, or other joint
debts. A senior may find it helpful to add one of their children or another authorized user to
their accounts to pay bills and do routine banking on their behalf if and when they are not able
to do so on their own. Joint accounts can cause problems, however, because they generally
provide all parties unlimited access to the funds. Thus, if one spouse has difficulty controlling
their spending habits, this may affect the other spouse, who may be more frugal. The frugal
spouse cannot challenge the withdrawals or transactions of the other spouse with the bank
because they are listed as a joint account holder.

Another thing to remember with joint accounts is that all parties with access are
responsible for any fees. If your husband runs up your joint credit card, you are equally
responsible for paying it back. Similarly, if your joint checking account goes into overdraft,
you are liable for a negative balance. The government may seize any funds in a joint account
to satisfy an outstanding order. That includes back taxes that may be owed, child support, or
other court-ordered garnishments. It is best for both parties to speak to discuss the
responsibilities associated with opening a joint account before doing so. This can avoid any
unnecessary problems and conflicts that may arise.
3) Partnership Account

Meaning
Partnership is an association between two or more persons who agree to do business and share
its profits and losses.
Partnership is a business relationship among two or more persons to share profits and losses of
the business, carried on by all or any of them acting for all.
Definition:
Partnership is defined by Indian Partnership Act, 1932, Section 4 as follows:
“Partnership is the relation between persons who have agreed to share the profits of a business
carried on by all or any of them acting for all.”
An account at a brokerage held by two or more people in which each person is equally
liable. The account holders may or may not have a written agreement on the rights and
obligations each one has in the partnership account.
4) Account of Ltd Company
A limited company (LC) is a general form of incorporation that limits the amount
of liability undertaken by the company's shareholders. It refers to a legal structure that ensures
that the liability of company members or subscribers is limited to their stake in
the company by way of investments or commitments. In a legal sense, a limited company is a
person.
The naming convention for this type of corporate structure is commonly used in the
United Kingdom, where a firm's name is followed by the abbreviated "Ltd." In the United
States, limited companies come in several forms, including the limited liability corporation
(LLC).
After a Private Limited Company (PLC) is incorporated, it receives a PAN number. The PLC
needs to open a bank account in the company name after receiving the PAN number. Though
opening a current account is not mandatory, it is better to open a current account in the
company name as it has a separate legal entity.
The company transactions should be done in the company’s current account rather than any
director or promoter’s personal or business account. The company’s current account will help
to differentiate the business finances from the personal finances of its directors or promoters.
A PLC can even have more than one current account.
Since the company is recognised as a legal person under many acts and laws in India, the
current account of the PLC is required for tax purposes, transactions with its creditors and
debtors, payment of salaries and dividends, legal proceedings against the company, settling
accounts at the time of liquidation, etc. It adds to the reliability and credibility of the
company’s financial transactions as the current account will be in the company name.
5) Account of Trust
An account in trust or trust account refers to any type of financial account that is
opened by an individual and managed by a designated trustee for the benefit of a third party
per agreed-upon terms.
For example, a parent can open a bank account for the benefit of their minor child and
stipulate rules as to when the minor can access the funds or assets in the account as well as any
income they generate. In most cases, the trustee who manages the funds and assets in the
account acts as a fiduciary, meaning the trustee has a legal responsibility to manage the
account prudently and manage assets in the best interests of the beneficiary.
Accounts in trust can hold different assets, including cash, stocks, bonds, mutual funds,
real estate, and other property and investments. Trustees can vary, as well. They can be the
person opening the account, someone else they designate as a trustee, or a financial institution,
such as a bank or brokerage firm.
Trustees have the option to make certain changes to the account in trust. These can
include naming a successor trustee or another beneficiary. A trustee may even close the
account in trust or open a subsidiary account, to which they can transfer some or all of the
assets in the account in trust. However, the trustee is obligated to follow the instructions of the
document that established the account in trust.
6) Government Bodies Account
Government accounts are also known as public unit accounts. This category includes
accounts of the federal government, state governments, and other governmental bodies as
discussed below. In this category, the governmental body itself is not treated as the insured
depositor. Rather, the “official custodian” of the account (as discussed below) is treated as the
insured depositor.