Technological Reforms in Clearing System of Banks


B. Sathish Kumar
V.L.B. Janakiammal College of Engg & Tech
Coimbatore-641 042

Banking sector is considered to be the backbone of financial system. Technology has made various changes in the mode of operation of banks. Changes like Automated teller machine, Internet Banking, phone banking, mobile banking, e-mail account statements etc., has made the banks to move to paperless banks. The operation of the banks has also become more customers friendly. The numbers of ATM of public sector banks have increased to 6748 from 3473 as at end of March 2004.

Private sector bank and foreign bank have been put in core banking solution, which has transferred the operation of the bank from decentralized to centralized operation.

As per the directions of the Central Vigilance Commission, Public sector banks have crossed 70% computerization for better customer satisfaction. Networking among banks also has gained importance.

The above all has made the banks more customers friendly. The main activity where recent development is taking place is payment and settlement system. This plays a major role in the economy. The settlement system should be safe, secure and effective. The time and cost involved in settlement of interbank and customer based transaction has come down. Banks in India was following Deferred Net settlement (DNS) and now it has moved to Real Time Gross Settlement (RTGS) system.

RTGS system was introduced in March 26, 2004. This system provides electronic based settlement of inter bank and customer transaction. The daily turnover is around Rs. 24,000 crores, this system covers 1451 branches and 152 cities & towns presently.

Under the management of RBI National settlement System also has been organized, this helps the banks to manage and avoid movement of funds among various clearinghouses.

 The retail payment system also has under gone drastic changes. In cheque clearing system MICR was introduced. Electronic Clearing System (ECS Debit & Credit ) also helps to handle bulk retail payments and Receipts. During the six month ending October 2004, ECS (Debit)   transaction recorded  75.95 lakhs and credit transactions recorded 198.64 lakhs. Securities market mainly operates through ECS. This has made the capital market to operate on T+2 settlement.

Another major boon the retail customers have got  due to technological development in plastic cards. The number of transactions and the value of transactions have drastically increased, this is exhibited in below table :

Type of Card

Volume of Transactions during 2003-04 (in '000)

Growth in volume
over previous year

Value of transaction       ( in Rs. Crore)

Percentage of growth over previous year.

Credit card





Debit Card





Smart Cards





Institute for development and Research in banking Technology (IDRBT) is working on interconnecting of ATM of various banks through National Financial Switch (NFS)

Similarly in Income Tax collection and refund of taxes to facilitate taxpayer and for fast collection and transmission of data Online Tax Accounting System (OCTAS) has been introduced. This has made tax collection to T + 1 basis. Similarly central Board of Direct Taxes has also accepted suggestion of refund through ECS.


These development in the banking sector will help for the efficient collection and inter bank fund transfer. This saves not only the cost but also help for economic development.

B. Sathish Kumar
V.L.B. Janakiammal College of Engg & Tech
Coimbatore-641 042

Source: E-mail December 14, 2005


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