in the country, the reserve bank constituted, in 2005, a board for regulation and supervision of payment and settlement systems ( bpss ) as a committee of its central board. the board is chaired by the governor, rbi while all the four deputy governors and two external directors of the central board are its members. the role of the bpss is to lay down policies relating to the regulation and supervision of all types of payment and settlement systems, set standards for existing and future systems, approve criteria for authorisation of payment and settlement systems, and determine criteria for membership to these systems, including continuation, termination and rejection of membership. thus, the bpss is the highest policy making body in regard to the payment and settlement systems in the country and encompasses electronic, non - electronic, domestic and cross - border payment and settlement systems which affect the domestic transactions. in its relatively short span since its inception, the bpss has provided valuable guidance in shaping the emerging contours of the payment and settlement system in the country and has helped widen the reach of the payment services of the banks to the hinterland areas. payment and settlement systems act 2007 it is internationally acknowledged that payment and settlement systems should function on a well - founded legal basis. this entails among other things, proper authorisation requirement for setting up and payment systems, legal recognition for netting, settlement finality, providing for regulation and oversight of the payment and settlement systems. many countries have either provided for these requirements in their central bank statutes or have drafted separate and comprehensive laws for this purpose. in india where the economy is growing at a fast pace increasingly large volumes and values are being handled by payment systems. non - bank entities who are outside the explicit regulatory purview of the central bank are running / are likely to run important payment systems. a number of innovative payment instruments / systems have been introduced by unregulated entities. while large payment systems which are unregulated present risks to the stability of the financial systems, unauthorised retail payment systems without proper management and operational structures can undermine public confidence in the efficacy of the payment systems as a whole. the reserve bank and the government felt that there should be an explicit law to regulate the payment and settlement systems. the parliament has enacted the payment and settlement systems act in december 2007. this act empowers the reserve bank to regulate and supervise the payment and settlement systems and provides a legal basis for multilateral netting and settlement finality. the act empowers the reserve

associates, 17 by the reserve bank, and the remaining 36 by 12 nationalised banks. the mechanised cheques processing using micr technology ( magnetic ink character recognition ) is now available at 60 locations and six more locations are being upgraded with this technology. thus, the computerised clearing houses numbering 915 ( including the 60 micr centres ), account for 84 per cent of the total number of clearing houses in the country. this demonstrates that our payment system has indeed made remarkable progress during the last two decades, with ongoing adoption and up - gradation of technology. objectives of the payment system as some of you might recollect, a monograph on payment systems in india was prepared by the rbi in 1998 to increase the awareness, both within the country and abroad, of the payment systems existing in india. the monograph also detailed the objectives that needed to be achieved. to that end, a payment system vision document for 2001 - 04 was prepared to draw up the roadmap for consolidation, development and integration of payment systems in the country. once these objectives were achieved, a vision document for 2005 – 08 was published in may 2005, articulating the reserve bank ’ s vision for the coming four years for the payment and settlement area. the mission enshrined in the vision document is the establishment of safe, secure, sound and efficient payment and settlement systems for the country, towards which all the upgradation efforts are focused. whereas safety in payment and settlement systems relates to risk reduction measures, security pertains to confidence in the integrity of the payment systems. all payment systems are envisaged to be on sound footing with adequate legal backing for operational procedures and transparency norms. efficiency enhancements are envisaged by leveraging the benefits of technology for cost - effective solutions. thus, as part of its public policy objectives, the reserve bank has played a major role in the design, development and functioning of payment and settlement systems, and the multi - dimensional efforts of the rbi over the years have been geared to realise this vision. the role of the rbi the development of a payment system is one developmental role that is common to most of the central banks. it is well recognised that an efficient payment and settlement system is essential for efficient functioning of the modern financial system. the reserve bank has, therefore, played a catalytic role, over the years, in creating an institutional framework for development of a safe, secure, sound and efficient payment system for the country. it has also