File photo of parliament. (Press Trust of India)
Parliament today passed a bill that seeks to address the problem of insolvency in the payment and settlement system by increasing transparency and stability and bring India's banking payment system in sync with international practices.
"The Payments and Settlement Systems (Amendment) Bill, 2014" was passed today by Rajya Sabha by voice vote, with members cutting across party lines extending their support to the bill. The bill was earlier passed by Lok Sabha.
Moving the amended bill, Finance Minister Arun Jaitley said it was needed to address the issue of insolvency so that there is protection for payments.
The amendment to the Payment and Settlement Systems Act, 2007, was proposed to update the regulations in line with globally accepted standards.
The amendment seeks to protect funds collected from the customers by the payment system providers and to extend the Act to cover trade repository and legal entity identifier issuer. A Legal Entity Identifier is an unique ID associated with a single corporate entity.
"The amendments to the said Act have been proposed to increase transparency and stability of Indian financial markets in line with globally accepted norms," the bill's objectives state.
As per the objectives of the bill, given the markets being served by the Clearing Corporation of India Limited, the participating banks run significant exposures against the said Corporation, in its role as central counter party. Hence, it is necessary to provide a sound and enforceable legal basis for "netting" of banks exposures to said Corporation so that their exposure is reduced significantly.
The said Act, though providing for netting protection and settlement finality in the event of insolvency or dissolution of system participants, does not expressly contemplate a situation which may warrant netting on account of insolvency or dissolution of the central counter party itself.
"The proposed amendments on enforceability of netting in the event of insolvency or dissolution of the system provider would provide finality to the determination of the payment obligations and settlement instructions between a central counter party and system participants in the event of insolvency, dissolution or winding up of a central counter party," the bill's objectives state.
The bill was earlier sent to a Select Committee which was headed by V P Singh Badnore, who said that they held various meetings and also met bankers regarding the bill.
Others who spoke in favour of the bill included Vivek Gupta (TMC), A W Rabi Bernard (AIADMK), Anil Desai (Shiv Sena), Bhupinder Singh (BJD) and Naresh Agrawal (SP).