12th SAARC Payments Council Meeting Nov 18, 2012 Dhanka , BANGLADESH

1. 12th SAARC Payments Council MeetingNov 18, 2012 Dhanka, BANGLADESH Latest Payment System Development / measures For SPC Objectives Presented By : Nepal Rastra Bank

2. NEPAL RASTRA BANK (12th S P C Meeting, NOV.18,2012 )Recent Developments • Due to lack of political stability government fiscal policy is not supporting well as it need for economic development. • Government's development budget is narrow and general budget for administrative purpose is running by government. • There are no more explainable growth in banking sector in comparison of last six months.

3. NEPAL RASTRA BANK (12th S P C Meeting, NOV.18,2012 )Recent Developments cont… • In this scenario monitory policy did not get speed up for financial and banking activities for good growth. Thus we are feeling constant in banking development activities. We are in ongoing phase for previous payment system development although some regulatory policies frame work is in formulation phase specially for mobile banking as electronic branchless bank. The policy framework for revenue collection by electronically is under discussion.

4. NEPAL RASTRA BANK (12th S P C Meeting, NOV.18,2012 ) Recent Developments cont… • Depository And Clearing & Settlement (CDCS) has already come into operation since August 2011. • Nepal Clearing House Ltd (NCHL) is already started operation from 27 March2012. • Amendment draft on AML Act has been approved by the Government. • Proposed amendment draft on Bank and Financial Institutions Act has been submitted to Government.

5. NEPAL RASTRA BANK (12th S P C Meeting, NOV.18,2012 ) Recent Developments Cont.. • Policy on merger and acquisition of banks and financial institutions has been introduced. As a result some Finance companies already merged & some are in process for merging. • Recent development in NRB is “ Modern G L software” which is in final stage of trial for installation. After installation, all the update information will be available. “Online Data System” will be available soon so that transaction of domestic & international payment and settlement will be faster than before.

6. NEPAL RASTRA BANK (12th S P C Meeting, NOV.18,2012 ) Recent Developments Cont.. • It will help to maintain liquidity status, updating balance in currency chest for security purpose, maintaining agency balance for smooth international transaction. Thus new software will be very helpful for faster transaction and control forgery in direct or indirect way which will ultimately ensure as fast, effective, efficient, reliable, accessible, secured and sound payment and settlement system in banking sector of Nepal.

7. NEPAL RASTRA BANK (12th S P C Meeting, NOV.18,2012 ) Recent Developments cont…….. • In case of centralized clearing the Banks/FIs are posting their cheque clearing transaction centrally in the core banking system (CBS) as per the feature available in their CBS either through ABBS or Centralized clearing system with the branch list provided earlier. For decentralized clearing, the Banks/FIs are posting their clearing transaction from the respective branches.

8. NEPAL RASTRA BANK (12 th S P C Meeting, NOV.18,2012 )Areas requiring more Improvement • Payment Instruments • Legal and Regulatory Framework • Payment Technology • Clearing and Settlement Systems • Institutional Framework • Physical Infrastructure • Risks Mitigation • Collateral Management

9. NEPAL RASTRA BANK (12th S P C Meeting, Nov.18,2012 ) Targeted Program for Improvement 3 main areas of public policy have guided payments system development and reform: • Protecting the rights of users of payment system, • Enhancing efficiency and competition, and • Ensuring a safe, secure and reliable payment system.

10. NEPAL RASTRA BANK(12th S P C Meeting, Nov.18,2012 ) Targeted Program for Improvement cont.. • Therefore, the payment system must be deliberately and systematically reformed, developed and modernized with a view to building its capacity to meet the challenges and expectations of modern business and economic management. Moreover, Nepal Rastra Bank has formulated its strategic plan (2012-2016) to establish Real Time Gross Settlement System (RTGS) soon.

11. NEPAL RASTRA BANK (12th S P C Meeting, Nov.18,2012 ) Targeted Program for Improvement Conti… • NRB is in the process of formulating and implementing the PSS master plan under which, the implementation of the RTGS system and script security settlement system will be also included. Banks and financial institutions, other stakeholders and IT professionals are stimulating government and other related authorities to establish e-payment systems in the country.

12. NEPAL RASTRA BANK (12th S P C Meeting, Nov.18,2012 ) Setting up Payment & Settlement Division • Eestablishing Payment & Settlement Division: • With the growing expectations of banking system, there is need to be establish a strong Payment & Settlement Division that can effectively meet modern business expectations, enhance the country’s resource mobilization capacity through improved customer convenience and flexibility, and efficiently contribute to sustainable and positive macroeconomic performance. In materialization of the advanced payment system, NRB has already initiated to make necessary policies in setting up Payment & Settlement Division, which is in work-in-progress stage.

13. NEPAL RASTRA BANK (12th S P C Meeting, Nov.18,2012 ) Setting up Payment & Settlement Division The basic functions of Payment & Settlement Division will be as follows: 1) Provides a variety of adequate payment instruments, and put in place mechanism and processes that can safely and cost-effectively supports the transfer of monetary value from payer to payee. 2) Facilitates a quick transfer of funds between transacting parties, with a view to minimizing float and improving efficiency in the circulation and transmission of funds. 3) Manages and minimizes risk in a cost-effective manner so as to enhance and strengthen PSS.

14. NEPAL RASTRA BANK (12th S P C Meeting, Nov.18,2012 ) Setting up Payment & Settlement Division The basic functions of Payment & Settlement Division will be as follows: 4) Develop and put in place an adequate legal and regulatory framework that can sufficiently regulate payment system’s activities, and provide for expeditious and cost effective conflict resolution procedures. 5)Enhance the country’s macroeconomic management capabilities through the availability of timely and accurate information about the stock and flow of funds. 6)Work closely with Government and other infrastructural providers to upgrade the existing infrastructure and processes to levels that can adequately and efficiently support modern Payment practices, delivery channels and trends.

15. NEPAL RASTRA BANK (12th S P C Meeting, Nov.18,2012 ) Action Plan on SPC Objectives As per the objectives stipulated above, the following action points have been targeted to be achieved in the next one to three years of time. The NRB's response would be proactive and to dovetail its initiatives depending on co-operation and support from various stakeholders, expectations of the system capabilities and preparedness of the participants, and developments from time to time.

16. NEPAL RASTRA BANK (12th S P C Meeting, Nov.18,2012 )Action Plan on SPC Objectives cont • Initiate on baseline survey on existing payment systems on major areas including technological improvements, information exchange, new training modules, specific fraud prevention measures. • Establishing authorization of all payment systems operation if the systems is equipped with added efficiency, increase customer convenience, expand outreach and bringing all improvements.

17. NEPAL RASTRA BANK (12th S P C Meeting, Nov.18,2012 )Action Plan on SPC Objectives cont • Streamlining access criteria prescriptions for all retail and large value payments s Streamlining access criteria prescriptions for all retail and large value payment systems like MICR, ECS / NECS, NEFT and RTGS. The existing access criteria parameters will be constantly reviewed and modified, wherever necessary.  • Ensuring redundancies to handle business continuity requirements. The redundancies in the form of additional/alternate arrangements will address both processing and settlement requirements. Periodic assessment by way of conducting drills, switch-over of the operations / settlements will be carried out and business continuity plans will be documented and suitably modified.

18. NEPAL RASTRA BANK (12th S P C Meeting, Nov.18,2012 )Action Plan on SPC Objectives cont • Putting in place appropriate mechanism for on-site inspections / off-site surveillance. • Infrastructure development and redefinement as: • Back-up arrangements by way of identifying alternate banks to take over processing and settlement operations in the event of non-availability of the main bank would ensure availability of clearing infrastructure during strikes / disruptions.

19. NEPAL RASTRA BANK (12th S P C Meeting,Nov.18,2012 )Action Plan on SPC Objectives cont • Promoting all electronic modes of payment for a well-maintained financial inclusion, enabling with RTGS, NECS. Electronic modes of payments have the benefits of safety, speed, efficiency, low cost and audit trails. The Bank will therefore endeavor to facilitate the electronic modes. Acceptability of the new on-site and off-site delivery channels viz. Core Banking Solutions (Branch Banking), Computers (Net Banking), Cards (Pre-paid Payment Instruments), Mobiles (Mobile Banking), Automated Teller Machines, Points-Of-Sale Terminals, Hand-held Devices, Interactive Voice Response Modes and the like will be carefully monitored, nurtured and actively pursued..

20. NEPAL RASTRA BANK (12th S P C Meeting, Nov.18,2012 )Action Plan on SPC Objectives cont • Develop core competencies for a detailed public awareness program initiating from the root level to the centralized clearing system in order to boost up public confidence. • Organizing a mutual benefit program from a developed payment systems to a underdevelopment payment systems in terms of technical support. • In regard to the technical operation with exchanging areas, construct a core committee to gather appropriate bank staffs to make visits in developed payment sectors. .

21. NEPAL RASTRA BANK (12th S P C Meeting, Nov.18,2012 )Action Plan on SPC Objectives cont • Review on the existing regulatory framework for developing a regional level arrangement of fund transfer, remittances, eg. Establishing India Nepal Remittance system to avoid the habits of carrying cash in moving on the both countries by workers. • Developing a solid E-payment Act with supporting relevant directives to enhance cashless instruments, facilitating the entrepreneurs and traders to buy POS machines .

22. NEPAL RASTRA BANK (12th S P C Meeting, Nov.18,2012 )Action Plan on SPC Objectives cont • Develop a control mechanism on safety of transactions on ATMs, Pos terminals, activities permitted to be carried out through ATMs, security features for ensuring the privacy and safety of transactions, resolution of grievances, complaint handling, accessibility of other-bank ATMs, inter-ATM networks, etc. .

23. NEPAL RASTRA BANK (12th S P C Meeting, Nov.18,2012 ) Submitted to : SPC, Dhanka, BANGLADESH Thank you very much to all. To be familiar with Nepalese banking system.