KATHMANDU, MAY 11 -
Manual clearance of high-volume customer payment cheques poses a
greater systemic risk to the financial system, an assessment of Nepal’s
payment conducted by the Nepal Rastra Bank (NRB) has concluded.
Currently, cheques worth more than Rs 100 million are cleared by a
special daily manual clearing session at the NRB. On an average, the
central bank clears eight such cheques every day.
The current arrangement on high-volume cheque payment poses a systemic
risk as it may cause problems for other banks and potentially across the
financial system provided a bank has an insufficient fund in its
settlement account to cover its obligations, stated the review report of
National Payment System carried out with support from the International
Financial Corporation (IFC).
“Measures currently in place (for example imposing penalties) do not
actually address the problem, which demands immediate action to resolve
the position rather than penalising the offending institution latter,”
states the report made public on Friday.
NRB Executive Director Shiba Raj Shrestha said a manual clearance
system for high-volume cheques was adopted considering risks associated
with technology-enabled services. “We cannot fully trust
technology-enabled services given infringement attempts,” said Shrestha.
“The manual system is more or less risk free.”
Shrestha, however, said the manual system pay put traders’ reputation at risk if their payments are not cleared on time.
Besides, the central bank also released three other documents — drafts
of the Nepal Payment System Development Strategy, Nepal Rastra Bank
Payment System Oversight, and Implementation of Payment System
Functions: Roadmap.
The strategy has proposed moving large-volume payment to the Real Time
Gross Settlement System (RTGS) that the central bank plans to introduce.
“Preparatory work has begun in this regard,” said Shrestha.
The strategy has also proposed introduction of payment amount limits,
requiring banks to maintain minimum balances, or introducing a
collateral pool. The establishment of settlement assurance procedures,
such as cost sharing arrangements or a guarantee fund, and its
associated costs, will be studied in terms of the level of systemic
importance of the automated clearing house are other recommendations.
The proposed strategy has suggested connecting Smart Choice
Technologies’ (SCT) systems to the RTGS system to remove the risk in the
current system where settlement is done a day after transactions
through SCT.
SCT is Nepal’s largest card services provider, with 84 members and some
1.7 million cardholders (out of an approximately 2.5 million total
cardholders in Nepal).
Another risk pointed out by the review report is the problem related to
power supply. “While this is not directly a problem with
battery-powered devices such as mobile phones and some models of point
of sale terminals, it still imposes constraints on what is possible,
because batteries need to be recharged at fairly frequent intervals,”
states the report. “Also, the telecommunications networks and central
servers on which innovative payment services are dependent cannot be run
on battery power.”
Given the Nepal Clearing House Coming up with an idea of direct credit
and direct debit facility, the proposed strategy has called for an
efficient, sound and interoperable retail payment system. At present,
there is no automated inter-bank payment system for electronic retail
payment instruments. A number of commercial banks in Nepal have invested
in automation of their internal systems, and as a result, a significant
proportion of their customers’ intra-bank payments have moved from
cheque to electronic means of payments.
Shrestha said individual banks have made arrangements for utility
payment such as telephone bill and insurance premium payment directly
from the individual’s account. “In a direct debit facility, the utility
body can withdraw the amount directly from one’s bank account for
services provided,” he said.
The strategy has also proposed the development of inter-bank repo
market and collateralised interbank lending operations which the central
bank has planned to do.
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