Empirical assessments of the Reserve Bank of India’s policy measures on payment and settlement systems in India

Sasanka Maiti and Nandyala Hemachandra

Abstract

This paper empirically evaluates the effects of policy measures used by the Reserve Bank of India (RBI) on interbank payment and settlement systems in that country. It is found that two major policy directions – namely, (i) mandatory use of electronic payments and (ii) capping service charges on payment products – have facilitated a reduction in the country’s reliance on a paper-based check clearing system. Multiple policy measures focussing on retail electronic payment systems and cards have increased public confidence. Traditional cash transactions are being replaced by noncash modes of payment via retail electronic payment systems, point-of-sale terminals and checks on account of demonetization due to a ban on high-denomination currency notes. The altered payment pattern during the demonetization period has continued during the post-demonetization period. The increased use of paper-based instruments, ie, checks for low-value transactions, will require further policy measures.