Page 9 - Banking Finance September 2024

RBI CORNER

tives. "No specific factor was mandated ing days to speed up payments and M V Rao, chairman, Indian Banks' As-
for authentication, but the digital pay- enhance efficiency in the system. sociation (IBA) & managing director &
ments ecosystem has primarily At present, cheque clearing through CEO, Central Bank of India said "on
adopted SMS-based OTP as AFA. Cheque Truncation System (CTS) oper- realisation-settlement" will benefit the
While OTP is working satisfactorily, ates in a batch processing mode. Un- public in general.
technological advancements have der the proposed system, cheques will
made available alternative authentica- be cleared within a few hours on the RBI mandates fortnightly
tion mechanisms," RBI said. day of presentation. This will speed up credit information report-
RBI believes that the primary factor cheque payments and benefit both the
for authentication should be some- payer and the payee. ing
thing the user knows (such as pass- The cheques will be scanned, pre- The Reserve Bank of India (RBI) man-
word, passphrase, PIN), something the sented, and passed in a few hours and dated the frequency of credit informa-
user has (such as card hardware or on a continuous basis during business tion reporting to fortnightly basis as a
software token) something the user is hours. The clearing cycle will reduce measure to boost transparency in the
(fingerprint or any other form of bio- from the present T+1 days to a few system. This will be effective from Janu-
metrics). hours. Detailed guidelines in this re- ary 1, 2025, the banking regulator said
gard will be issued shortly, RBI said in in notification.
Now, cheques to be a statement accompanying the Mon-
Currently, credit institutions (CIs) are
cleared in a few hours etary Policy Review.
required to report the credit informa-
Reserve Bank of India (RBI) has pro- The new system is expected to im- tion of their borrowers to credit infor-
posed continuous clearing of cheques prove cheque clearing efficiency, re- mation companies (CICs) at monthly or
with 'on-realisation-settlement' duce settlement risk for participants, such shorter intervals as mutually
Cheque Truncation System, instead of and enhance customer experience, agreed between the CI and CICs.
the current clearing cycle of two work- RBI said.
While announcing the monetary policy
review Shakitkanta Das, Governor, RBI
RBI proposes risk-based pricing for deposit cover
said, "It is proposed to increase the
RBI has proposed risk-based pricing for bank deposit insurance. The reason- frequency of reporting of credit infor-
ing is that stressed banks could face rapid deposit withdrawals through digi- mation to a fortnightly basis or at
tal channels, as quick dissemination of information through social media shorter intervals. Consequently, bor-
could accelerate bank runs.
rowers will benefit from faster
"The implementation of risk-based premium for deposit insurance merits con- updation of their credit information,
sideration. By tying insurance premiums to the level of risk posed by individual especially when they repay their loans.
financial institutions, deposit insurers can incentivise banks to adopt stronger The lenders, on their part, will be able
risk management practices," RBI deputy governor Swaminathan J said. to make better risk assessments of
He was speaking at a conference organised by the International Associa- borrowers."
tion of Deposit Insurers. Experts says this will lead to better
The deputy governor's statement comes at a time when there is a fight for underwriting decisions by the lenders
deposits among banks with credit growth outpacing deposits. "The 24/7 while ensuring faster resolution of
availability of online and mobile banking can heighten vulnerabilities, po- consumer disputes. Rajesh Kumar, MD
tentially accelerating bank runs and liquidity crises during periods of stress. & CEO, Trans Union CIBIL said, "CICs
Further, this behaviour is amplified with the emergence of digital sources of will be able to update credit records
influence, such as social media platforms," said Swaminathan. faster and this will translate into more
At present, the Deposit Insurance and Credit Guarantee Corporation pro- updated data being available for
vides insurance cover up to Rs 5 lakh per depositor which is payable when making informed lending decisions by
a bank fails. lenders."

BANKING FINANCE | SEPTEMBER | 2024 | 9