Terming payment systems as the backbone of a nation's financial infrastructure, N R Narayana Murthy, chief mentor of Infosys, on Wednesday called for widening the reach of the electronic payment system to rural areas.
Murthy was speaking at an international seminar in Hyderabad on payment and settlement systems jointly organised by Reserve Bank of India, Institute for Development and Research in Banking Technology and Bank for International Settlements. Murthy is a former member of the central board of RBI.
"According to RBI, there are about 48,000 public sector bank branches in India of which over 63 per cent are in semi-urban and rural areas. Though over 70 per cent of the branches have attained 100 per cent computerisation, real time gross settlement is available only in 23,500 branches while national electronic funds transfer covers less than 5,000 branches," Murthy said, adding that integrating semi-urban and rural areas into the electronic clearing system was critical.
McKinsey estimates that by moving completely to electronic payment systems, there could be annual savings of about $6.3 billion in India.
Among the retail payment systems, electronic clearing accounted for less than 1.5 per cent of the total value of transactions in 2004-05. Murthy said retail payment systems need to be improved by developing appropriate applications and user-friendly websites with simple interfaces and local content.
Murthy also called for elimination of the non-magnetic ink character recognition cheques and rolling out of the cheque truncation system, which basically replaces the paper-based cheque clearing process with imaging technology.
RBI intends to eliminate non-MICR cheques - which accounted for over 25 per cent of the cheques transacted in 2004-05 - by March 2007 while the CTS technology is slated to commence as a pilot by the end of this year.
According to a study by The Boston Consulting Group, payments business in banks represent more than 40 per cent of their total revenue and 33 per cent of their profits.
