In the year 1998-99, Reserve Bank of India launched the project to construct a Real-Time Gross Settlement System (RTGS), to allow secure inter-bank payments throughout the country. The system is planned to eventually interface to all RBI sites, as well as other member banks across the country. The project is currently under implementation.

At the bedrock of the design of an integrated payments and settlement system is the Real Time Gross Settlement (RTGS) system. The Real Time Gross Settlement system is being designed to provide large value funds transfer and settlement in an on-line real time environment to the banking industry, with settlement on a gross basis. An integral component of the Real Time Gross Settlement system will be the Delivery versus Payment module for trading and settlement in Government Securities transactions. The system would have link with other netting systems like Clearing, Automated Clearing House transactions comprising of Electronic Clearing Service, Retail Electronic Funds Transfer, all Plastic Money and Smart Card transactions and Electronic Funds Transfer at Point of Sale(EFTPOS). Work in setting up the RTGS system has already started in the Reserve Bank with the setting up of a Working Group for the Appointment of Consultant for the implementation of the RTGS project. In fact, Request for Proposals have been invited from leading vendors intimately associated with Payment System applications.

The RTGS project is designed to provide significant benefits to individuals and businesses throughout India. By underwriting all payments with collateral held at the Reserve Bank of India, the RTGS system will reduce systemic risk in the Indian banking system, thereby providing increased integrity and security for all interbank transactions.

The RTGS provides for real-time processing and settlement of funds transfers. The first phase of the project calls for creation of an Integrated Accounting System (IAS) to handle all internal and interbank accounting transactions for RBI. This new core banking system will handle all general transactions and central accounting for RBI, including the bank's general ledger.

The RTGS will employ two sets of queues: one for testing funds availability and one for processing of debit/credit requests received from the Integrated Accounting System.

All transactions will be queued and submitted for funds availability testing on a first in-first out basis, i.e., all transactions will be queued in the order in which they were received and the oldest transaction in each participant's queue will be tested first. Transactions which fail a funds availability test will be returned to the payment queue to be retested periodically. An optimizing algorithm will scan the queues periodically during the day to identify potential gridlock situations.

Payment messages from a sending bank to the Reserve Bank will be processed through an intermediate processor-the Inter-Bank Funds Transfer Processor (IFTP). RBI's software will be supplied to member financial institutions to enable their direct participation in the RTGS system.

The system is stated to be highly scalable. It is designed to handle high volumes including a very high peak.

The RTGS system will be developed on the IBM mainframe S/390, and the operating system will be OS/390. The security infrastructure will be PKI-based. The project will employ point-to-point remote copy for back-up and restore operations, meaning that the backup server will be a few miles from the main site, connected over fiber optic infrastructure.

One of the major issues plaguing the banking industry is the lack of standardisation. For the payment system reform to take-off successfully, the standardisation of operating systems, systems software and application software throughout the banking industry is a necessary condition which may have to be pursued.

This issue was discussed in-depth by the Committee on Technology Upgradation in the Banking Sector, set up by the Reserve Bank of India. The Committee has recommended the need for standards in various areas apart from highlighting the need for an appropriate institutional arrangement for key management and authentication by way of a certification agency. The Report also recommended adoption of the widely used cryptography procedures to prevent data tampering during transmission. This is to be implemented at the application level supplementing the security already provided at the network level, in view of the critical nature of financial message transfer over communication networks.

RBI has standardised their message formats in tune with accepted international standards. A Working Group on the Design of Message Formats has been formed for this purpose. The Group has finished phase one of its activity. Message formats for applications such as Customer Payments and Cheques, Financial Institution Transfers, Treasury Markets, Collections and Cash Letters, Securities Markets, Documentary Credits and Guarantees, Cash Management and Customer Status and Common Group Messages have already been finalised. The work of designing the message formats pertaining to Government Account Transactions, Currency Chest Transfer, and some segments of Government Securities Transactions will be completed in phase two by the Working Group. In addition, the RBI has also constituted a few sub-groups for standardisation of different information technology components like networking products and system software. These measures have been initiated as the INFINET is essentially an Internet Protocol (IP) and all the applications should be built around TCP/IP, to optimise use of the communication resources and to facilitate smooth implementation of the applications on the network.

Coupled with computerisation of branches of the banks, the Reserve Bank has been exhorting the banks to network their branches for intra-bank connectivity for addressing the twin issues of intra-bank funds transfer and transmission of critical MIS information between the branches and the controlling offices. Intra-bank connectivity will ensure that Treasury or Funds Department is connected to the Controlling office on the one hand and with the large business centres on the other hand. This will provide the bank a global vision of its funds position and optimal utilisation thereof.