After successfully implementing a low-cost payment system in the country, the Reserve Bank of India (RBI) is exploring the possibility of expanding its payment system abroad following “requests” from several countries.
The central bank said “specific interests or requests are being received” for implementing payment systems like CTS (cheque truncation system), NEFT, UPI and messaging solutions by certain jurisdictions. “There is scope for enhancing global outreach of our payment systems, including remittance services, through active participation and co-operation in international and regional fora by collaborating and contributing to standard setting,” the RBI said in a note on ‘Oversight framework for financial market infrastructures and retail payment systems’.
Currently, there are no RBI authorised payment system operators providing payment services outside India. “However, with the availability of low cost innovative digital payment products in India, many countries have expressed interest in partnering in this growth and replicating our products based on their country specific requirements,” the RBI said.
Many countries that are attracted by the low-cost innovative digital payment products in India have expressed interest in replicating India’s products based on their country specific requirements. However, the risks of such systems would also be high. The participants in a domestic system might become dependent on overseas funds to fund their domestic debt position, leading to possible liquidity risk issues.
The central bank said cross-country cooperation with Bhutan is already in place with CTS, NACH and NEFT operational there as well. NEFT is available for one-way transfers from India to Nepal.
However, considering that efforts are being taken to increase and widen the scope, coverage and usage of RuPay card scheme — developed by NPCI — and UPI to enhance their brand value internationally, the risks of such systems would also be high, the RBI said. The participants in a domestic system might become dependent on the funds they are to receive in an offshore system to fund their domestic debt position, leading to possible liquidity risk issues, it said.
According to the RBI, this could also be on account of different time zones and also due to lacking nature of suitable depth in the currency markets of such economies, and more so in the event of financial distress. In such cases, there would be a requirement for constant cooperation with the concerned central banks and other regulatory authorities.
The RBI also said cash, as a payment mode, is still important but it is increasingly seen as a way to store value, more than to make payments. “India’s growing use of retail digital payments, along with the radical reconstruction of its cash economy, indicates a shift in the relationship with cash. This is evidenced by the steep growth observed in the retail digital payments,” it said.
The RBI said its study revealed that while currency in circulation (CIC) across the country increased at a compounded annual growth of 10.2 per cent over the past 5 years, the CIC to GDP reduced from 11.6 per cent in 2014-15 to 11.2 per cent in 2018-19. The cash withdrawals from ATMs increased during the same period, but the percentage of cash withdrawals to GDP was constant at around 17 per cent, it said.
Further, while the digital payments in the country have witnessed a growth of 61 per cent and 19 per cent in terms of volume and value, respectively, the value of digital payments to GDP has also increased from 660 per cent in 2014-15 to 862 per cent in 2018-19. In addition, the deployment of ATMs has grown at a low pace (4 per cent) and the PoS terminals contrastingly grew at a high pace of 35 per cent, it said.
The parameters considered as indicative of cash payments are currency in circulation (CIC), share of high value denominated currency and low value denominated currency and cash withdrawals from ATMs, whereas parameters used for assessing the level of digitisation were growth of digital payments, digital payments to GDP and infrastructure, it said.