Professional Documents
Culture Documents
I wish to express my heartful indebtness & deep sense of gratitude to all those
have contributed to this project.
To begin with, I would like to thank Prof. V.V.Ratna for giving me the
opportunity to experience the realistic work culture through this Training
Programme.
And at last, I am thankful to all divine light & my parents & friends, who kept my
motivation and zest for knowledge always high throughout tides of time.
Regards,
Neha Singh
PGDM- 4 th trimester
Jaipuria Institute of Management
Lucknow.
1
2
Having a sound, reliable and fast payment system is
not only important for the economy in general, the
financial system, but also for the institutions and
people having place in the economic world.
3
Since payment systems can contribute to spreading problems from one system
participant to the others, the central banks are becoming increasingly aware of risks
inherent to these systems. Although it is normally considered very unlikely that
payment systems will trigger systemic crises, the potential consequences are vast
and might thus pose a threat to both domestic and in ternational financial stability.
Central banks are paying increasing attention to the various types of risk associated
with the use of payment systems. Reason- [1] the mutual exposures of the system
participants have increased considerably as payment systems have expanded by
transaction volume. [2] The substantial potential losses in a payment system are to
a particular extent related to its role as a possible source of contamination.
The probability of the majority of payment system risks occurring is very small,
but the potential losses to the system participants can be considerable and thus pose
a threat to financial stability.
Credit Risk: The risk that a participant in the system goes into
compulsory liquidation or is otherwise unable to meet its full financial obligations
at the expected time or later.
Liquidity Risk: The risk that a participant in the system does not have
sufficient liquidity to meet its obligations at the expected time-although the
participant in question may be able to meet its obligations at a later time.
4
Operational Risk:
The risk that operational factors, e.g. system downtime or operational errors, result in
or amplify credit or liquidity risks.
Legal Risk :
The risk that an inadequate legal basis for the system results in or amplifies credit or
liquidity risks .
Systemic Risk:
The risk that one participant's difficulties in meeting its financial obligations or
problems inherent to the system itself, spread to other participants in the system or
to other areas of the financial sector.
• Loss distribution agreements to ensure that clearing can take place even if one
or several participants cannot meet their obligations. The agreements are often
structured to ensure that a situation where the participant with the largest payment
obligation is disregarded can be handled.
5
A sound legal framework is an important
requirement for the safe and efficient functioning of
the payment and settlement systems. The Payment
and Settlement Systems Act, 2007 was notified on
December 20, 2007 . The Act came into effect on
August 12, 2008 . The regulations framed under the
Act i.e. , Board for Regulation and Supervision of
Payment and Settlement Systems Regulations,
2008 and the Payment and Settlement Systems
Regulations, 2008, were also notified on August 12,
2008.
The BPSS, which was earlier constituted under the RBI Act, 1934, has since been
reconstituted under the Payment and Settlement Systems Act, 2007. The BPSS
Regulations 2008, cover: (a) composition of the Board; (b) functions and
powers of the Board; (c) powers to be exercised on behalf of the Board; and
(d) constitution of sub committees and advisory committees. The BPSS meets
regularly and gives directions for bringing in efficiency, safety and customer
convenience in the payment and settlement systems. Some of the areas in which
the Board has provided direction include preparation of a framework for
payments through mobile phones, extension of the jurisdiction of magnetic
ink character recognition (MICR) clearing houses and computerization of
non-MICR clearing houses, launching the Indo-Nepal remittance system,
making use of electronic mode of payment mandatory for large value
transactions, making all RTGS branches NEFT-enabled while upgrading the
NEFT system into a round-the-clock type remittance system, exploring the
feasibility of developing a domestic card to inject competition in the market in a
non-discriminatory manner, facilitating optimum use of ATMs by rationalizing
cash withdrawal/balance enquiry charges and disseminating information on major
payment services offered by banks including the service charges and quantum of
compensation to be paid by banks for deficiency in those services.
7
Core Principles for Payment Systems
• Who determined them?
• What are they? What are they not?
• Who are concerned with them?
• Core Principles in headlines?
• Systemically important payment systems
• Responsibilities of Central Banks
Rather, they suggest the key characteristics that all systemically important
payment systems should satisfy.
8
Not all payment systems in a country are required to comply with the core
principles. On the other hand, having "Systemically important payment systems"
in compliance with the core principles is critical for the effectiveness of the
financial system.
The designers, operators and overseers of such payment systems are directly
concerned with the core principles; whereas the participants are indirectly
concerned.
II. The system's rules and procedures should enable participants to have a clear
understanding of financial risks.
III. The system should have clearly defined procedures for the management of
credit risks and liquidity risks.
IV. The system should provide prompt final settlement on the day value.
VIII .The system should provide a means of making payment that is practical for its
users and efficient for the economy.
IX. The system should have objective and publicly disclosed criteria for
participation, which permit fair and open access.
9
BACKGROUND AND OBJECTIVE
The Reserve Bank of India has taken various initiatives for modernizing the
Payment and Settlement System in the Country. Information technology has been
identified as an integral component in the design and development of modern
payment system. Keeping in view the need for a robust integrated Payment and
Settlement System and focusing on use of the state of the art technology in the
modernization of the payment of Settlement System, a beginning was made on,
March 26, 2004 with roll out of the Real Time Gross Settlement (RTGS) System .
Following the flagging off RTGS, IBA thought it appropriate to team up with
LOGICA CMG, an international IT solution provider, to conduct a half a day
seminar on RTGS Readiness. The seminar will address the key issues of RTGS viz.
technical aspects on RTGS infrastructure, Impacts and benefits, Intra-day liquidity
policy, Intra-day liquidity solution, Procedures and operational issues in RTGS
implementation, Potential future of RTGS etc.
10
11
12
13
14
15
16
Reserve Bank of India has taken up initiative to establish an integrated
payment and settlement system in the country. Real Time Gross Settlement is one
of the projects taken up by RBI in this regard.
Real Time Gross Settlement System (RTGS) is the ultimate in the payment and
settlement architecture in any country primarily for online, real time inter bank
payment and settlement of large value funds.
17
What is Real Time Gross Settlement System?
Real Time Gross Settlement (RTGS) system, introduced in India since March 2004, is a
system through which electronic instructions can be given by banks to transfer funds
from their account.
World over, the central banks manage RTGS systems because the all banks in
a country maintain a current account with the central bank. Accordingly, in
India, it is being managed by RBI.
19
RTGS - Salient features
Smooth, safe and fastest mode of transferring money across the banks in
India
SECURITY FEATURES:
Transactions Supported:
• Inter-bank Payments
• Customer Payments
• Other transactions not initiated by the Bank (e.g. RBI Initiated transactions)
Our Treasury Department can effectively utilize this system for transferring
funds to other banks. This can also be utilized for Call money operations, Inter
Bank TT and all Deposit transactions. Customer payments like inter-bank fund
transfer could be enabled with implementation of RTGS. RTGS system is
hosted at the RBI center, Mumbai. Each PI will have several client machines
connected to PI interface.
Process Flow
RTGS
PI PI
F&I F&I
MUMBAI ICICI
ICICI DELHI
EKMA BRANCH
Fund transfer from Federal bank Ernakulam North Branch to ICICI bank Delhi
branch:
1. Branch EKMA will generate a request for fund transfer to Federal bank
F&I Mumbai Using AWB.
2. F&I Mumbai will communicate with the Federal bank Participant Interface
(PI), generate message and route it to RTGS system.
3. RTGS system in turn will route the message to PI of ICICI bank.
4. ICICI - PI will send the message to ICICI -F&I.
5. Service branch of ICICI will have to give the Credit to their Delhi branch
by the prevailing mechanism with ICICI.
22
Need for RTGS
Under the existing system, the settlement of the all individual payments takes place on
a net basis (i.e. difference of payment to be received and payment to be made) and that
too at a designated time. This causes the system participants to be exposed to financial
risks for the period during which settlement is deferred. Due to such delays in
settlement, a no. of capital market and money market frauds have taken place in India
in the recent years. Further, the existing payment system is capable to meet the
requirement of the 80s or 90 when the no. and volume of financial transactions was
limited. But, due to change in the economic perspective, its linkage with the global
economies and the role of information technology, need has been felt for a more
accurate, risk free, efficient and effective system. RTGS is an internationally
compatible and transparent-system which could be used to the full advantage of the
existing client base without dispensing with the benefits already available to customers.
One advantage of all RTGS systems is that in principle they eliminate credit risks for
the receiving bank. On the other hand, there is always a liquidity risk. RTGS systems
generally require more liquidity than netting systems since the participants must
continuously ensure that they have funds to cover their outgoing payments. The banks'
opportunities to remit payments will thus to a large extent depend on when incoming
23
payments are received during the course of the day. Queues may thus occur in an
RTGS system. Such problems are amplified in systems with scarce liquidity.
Access to the RTGS system is provided via a highly secure PC-based system, using a
secure extra net or Internet connection. Because of its immediacy and convenience,
RTGS payments are expected to surpass bank cheques and telegraphic transfers in the
near future.
Payments in RTGS systems are typically credit transactions, i.e. payments initiated by
the remitter (debtor).
The scale of today's payments and securities transactions between financial institutions
makes electronic settlement a requirement. Indeed, it is a fundamental precondition for
secure and efficient settlement and thereby for a well-functioning financial sector,
which is beneficial to economic growth and prosperity.
Most countries today have built up a payments infrastructure based on electronic
payment systems. Not all payments are settled via these systems, however, as some
payments are still settled outside the infrastructure, typically via correspondent banks.
24
Working of RTGS system:
OPERATIONAL FLOW
Institutions and individuals use RTGS when they need to transfer funds from one bank
to another. For example:
• You may want to use your deposit at Bank A to send a payment to a person having
an account at Bank B (see Figure, Step 1).
• Upon your order, Bank A sends a payment message, which includes necessary
details like the sender, the beneficiary and
the value, to RTGS (Step 2).
• RTGS promptly processes the
incoming payment message. If the
balance of the account of Bank A at
RTGS is sufficient, the payment is
transferred from Bank A to Bank B
within a few seconds (Step 3). Otherwise,
the payment is queued.
• Bank B credits the account of the
beneficiary (Step 4).
25
Although RTGS carries out the operations in real time, bank customers may sometimes
notice delays that may arise from operations and internal practices of Bank A and Bank
B.
RTGS is a crediting system. In other words, a participant can only credit another
participant's account.
Settled payments cannot be cancelled or revoked. In case of an erroneous payment, Bank
A and Bank B should agree for the reimbursement.
Operational hours
The RTGS operate between 8.00 AM and 8.00 PM every weekday, except for the official
holidays. The systems close at 1 PM on half workdays.
The systems have a phased online closure facility that allows closing certain operations at
distinct times during the workday. The CBRT makes arrangements concerning the
phased online closure and announces them to Participants
Payment systems trend in economically and technically developed countries is towards
establishing real-time gross settlement (RTGS) systems.
Similarly, EU countries had developed RTGS systems prior to the monetary union. By
means of TARGET, which connects RTGS systems of EU countries, easy and fast
transfer of cross-border euro (€) payments became possible.
26
GRIDLOCK AND DEADLOCK
Queuing in an RTGS system can be a consequence of an inappropriate distribution of
liquidity between the participants (gridlock), or a shortage of liquidity in the overall
payment system (deadlock). Deadlock can only be resolved by contributing further
liquidity to the payment system. Gridlock can also be resolved by redistributing liquidity
among the participants.
27
Gridlock can also occur if some participants minimize their liquidity requirement by not
remitting payments until they receive incoming payments. This can lead to a situation
where the participants are awaiting each other's payments and where some participants
cannot settle their payments due to tack of liquidity.
By using this system you are able to provide your customers with electronic, irrevocable
real-time settlement clearing for high value transactions.
28
The RTGS facility delivers the following benefits:
Electronic transaction processing through SWIFT
Speed : The beneficiary branches are expected to receive the funds in real time ,soon
after the funds are transferred by the remitting bank.
Quicker settlement cycles: Cuts across inter-bank and clearing house settlement issues.
29
Key Advantages:
• Available to all
All our Net banking (existing & new) users are eligible to utilize this on-line
facility.
• It’s simple, convenient, quick and secure
Users can transfer funds to the beneficiaries in other banks in a simple. Convenient
and seamless manner.
Funds transfer to other banks is faster, secure and safe.
I. To the economy:
• RTGS will reduce the systemic risk that exists in the present settlement Systems
like cascading affect on banks due to failure of one bank to meet its settlement
commitments
• It improves confidence of out side agencies like World Bank in Indian Economy.
• It enables efficient settlements and avoids settlement delays
III. To customers:
30
• They can get new banking services based on reliable high value funds transfer
system.
• The RTGS solution provides for a separate transaction type which can be used to
transmit the customer information along with the payment message to the
beneficiary's bank in a structured format.
31
ABOUT COMPANY:
PepsiCo Mission
"To be the world's premier consumer products company focused on
convenience foods and beverages. We seek to produce healthy financial rewards to
investors as we provide opportunities for growth and enrichment to our employees,
our business partners and the communities in which we operate. And in everything
we do, we strive for honesty, fairness and integrity."
PepsiCo in India
PepsiCo entered India in 198$ and has grown to become one of the country's leading
food and beverage companies. One of the largest multinational investors in the
country, PepsiCo has established a business which aims to serve the long term
dynamic needs of consumers in India.
PepsiCo India and its partners have invested more than U.S. $1 billion since the
company was established in the country. PepsiCo provides direct and indirect
employment to 150,000 people including suppliers and distributors.
PepsiCo nourishes consumers with a range of products from treats to healthy eats
that deliver joy as well as nutrition and always, good taste. PepsiCo India's expansive
portfolio includes iconic refreshment beverages Pepsi, 7 UP, Mirinda and Mountain
Dew, in addition to low calorie options such as Diet Pepsi, hydrating and nutritional
beverages such as Aquafina drinking water, isotonic sports drinks - Gatorade,
Tropicana 100% fruit juices, and juice based drinks - Tropicana Nectars, Tropicana
Twister and Slice. Local brands - Lehar Evervess Soda, Dukes Lemonade and
Mangola add to the diverse range of brands.
PepsiCo's foods company, Frito-Lay, is the leader in the branded salty snack market
and all Frito Lay products are free of trans-fat and MSG. It manufactures Lay's
Potato Chips; Cheetos extruded snacks, Uncle Chips and traditional snacks under the
Kurkure and Lehar brands. The company's high fibre breakfast cereal, Quaker Oats,
and low fat and roasted snack options enhance the healthful choices available to
32
consumers. Frito Lay's core products, Lay's, Kurkure, Uncle Chips and Cheetos are
cooked in Rice Bran Oil to significantly reduce saturated fats and all of its products
contain voluntary nutritional labeling on their packets.
The group has built an expansive beverage and foods business. To support its
operations, PepsiCo has 43 bottling plants in India, of which 15 are company owned
and 28 are franchisee owned. In addition to this, PepsiCo's Frito Lay foods division
has 3 state-of-the-art plants. PepsiCo's business is based on its sustainability vision of
making tomorrow better than today. PepsiCo's commitment to living by this vision
every day is visible in its contribution to the country, consumers and farmers.
Our Commitment
Our values reflect our aspirations - the kind of company we want Pepsico to be. We
express our values in the form of a commitment. Our commitment is :
Sustained Growth is fundamental to motivating and measuring our success. Our
quest for sustained growth stimulates innovation, places a value on results, and helps
us understand whether today's actions will contribute to our future. It is about growth
of people and company performance. It prioritizes making a difference and getting
things done.
Empowered People means we have the freedom to act and think in ways that we feel
will get the job done, while being consistent with the processes that ensure proper
governance and being mindful of the rest of the company's needs.
Responsibility and Trust form the foundation for healthy growth. It's about earning
the confidence that other people place in us as individuals and as a company. Our
responsibility means we take personal and corporate ownership for all we do, to be
good stewards of the resources entrusted to us. We build trust between ourselves and
others by walking the talk and being committed to succeeding together.
33
RTGS AT PEPSICO
NEED FOR RTGS
Earlier Practice:
• Distributors giving DD no. over phone.
• DD collectors to collect ODs from Distributor point, normal DD transit time 3 to 4
days.
Draw back in existing system:
• Possibility of errors in recording DD transit over phone.
thousand.
• PIH getting credit of DD in 6 to 7 days of dispatch of goods (3 to 4 days transit+3 days
local collection).
IMPLEMENTATION OF RTGS
• RTGS is implemented in UP effective May 24th 2009.
VIRTUAL ACCOUNT OPENING
• Any Distributor who wants to pay through RTGS will have to have a virtual
account code.
• Territories to send code opening request giving following details-
- Code opening request is sent to au treasury which takes 3 to 4 days time.
- Once virtual account is opened, the Distributor can transfer money through RTGS giving
his account no (In case of Pinnacle, its 17402285) and PIH IFSC no which is CITI-
0000002, common for all the Distributors.
34
Frequency OF REPORTS Received FROM citi
BANK
We get virtual account credit reports from Citibank at 11, 2, 5 and 8 o'clock every day.
For example-
- If any Distributor deposits money at 100'clock, it will appear in the report received at 11
- If the deposit is done at 11:30, it will appear in the report received at 2 o’clock.
PROcESS IMPLEMENTATION
• Citi bank virtual account credit report is received at unit office at ii, 2, 5 and 8 0'
clock every day.
• Upon receipt of reports, credit is passed on to customer with in half an hour.
• For instance, if a customer deposits amount in bank at 10.30, it will appear in the
report at 11. If deposit is made at 11.15, it will appear in the next report at 20' clock.
ACCOUNTING
Upon receipt of report, Distributor wise summary is prepared as-
TRANSACTIONS SUMMARY
Customer
35
Entry at Unit Office
RECONCILIATION
Every morning, transactions of the previous day in Citibank collection ale are reconciled
and summarized as follows-
Every entry made by unit office should have a corresponding credit entry from BU. For
each transaction, there will be two document nos., one passed at unit office and the
corresponding passed by head office. Reconciliation will be done every day.
36
BENEFIT TO PEPSICO
• RTGS systems do not create credit risk for the receiving participant.
• Simplifies account reconciliation due to predictability of funds flow.
• Savings of time involved
In physical dispatch of cheques to beneficiaries.
Deposits of cheques by beneficiaries with their banks.
Clearing of these cheques.
• Reduced chances of frauds typically associated with paper-based payments.
• PIH saves on DO collection charges as high as 35 lac a year.
• Safe transactions, risk on DD in transit ruled out.
• PIH gets instant credit as against minimum 7 days in DD transit scenario.
• No risk of DD fudging.
Operations tightly under control, no violations, Citi Bank account being reconciled on a
daily basis.
BENEFIT TO DISTRIBUTOR
• Forget about writing out & sending cheques! DD's or Pay Orders to the payee for
amounts above Rs. 1,00,000 /-.
• Free from the worry of instruments lost / misplaced in transit.
• Transact from the comfort of your home or office through Internet Banking of Bank.
• Faster transactions, with in two hours of deposit, credit will be passed on to the
Distributors accounts where as DDs are given by bank only after 4 o'clock in the evening.
• Profitability of the Distributor is increased, saving in DD commission.
• They can get new banking services based on reliable high value funds transfer
system.
The RTGS solution provides for a separate transaction type which can be used to transmit
the customer information along with the payment message to the beneficiary's bank in a
structured format.
37
Maximum amount transfer=50 lacs
Saving in bank commission, Rs 251- up to Rs 1,00,000/- and Rs 50/- max in RTGS against
Rs 2.75 per thousand DO commission.
FUTURE PlAN
• Cover all distributors.
• Simplify the process of credit.
• To work close with BU Treasury for automation of entries.
• To coordinate with Citibank for customized reports.
• 100% implementation of RTGS by 1st October, no DDs to be accepted for
transactions.
• For new Distributors, RTGS code to be opened right at the time of code opening.
CHALLENGES INVOLVED
• Cooperative Banks don't have RTGS facility.
• Connectivity Problem.
• Lack of knowledge.
• As a consequence of the ongoing individual settlement of payments in RTGS
systems, the participants have a large intraday liquidity requirement.
• Participants can manage their own outgoing payments, but do not usually know with
certainty when incoming payments will be received.
• Coaching and convincing the Distributors as well as front line.
• Leverage IT support, viewing virtual accounts summary, viewing other reports in
Citibank domain.
• Opening of virtual accounts in Citibank, taking a lot of time.
• Setting the process to account for RTGS entries at unit office.
38