The payment system of India and the relevant legislation

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Introduction

The development of a country depends upon the financial stability of that country. The government or central authority of country formulates the schemes which can work efficiently and adequately for the proper functioning of the financial sector of a country. The financial sector of India has undergone drastic change in the last two decades.

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Payment plays a vital role in the financial sector and it is considered as indispensable part in everyday transactions. A payment system is a mechanism that facilitates transfer of value between a payer and a beneficiary by which the payer discharges the payment obligations to the beneficiary.[1] The payment and settlement system serve as a backbone of financial system of a country.[2] Payment increases the GDP of the country therefore the payment system of country should be safe, secure, efficient and accessible. A safe and efficient payment and settlement system is sine qua non for the proper functioning of the financial system and it also plays an important role in the implementation of monetary policy as they provide conduit through which policy signals are transmitted.[3] Generally the central bank of any country works for the development of national payment system. The Reserve Bank of India (RBI), like other central banks, has been endeavoring to develop the payment and settlement system in India on a safe, sound, secure and efficient basis.[4] The Indian payment system is based on the paper- transaction but with the changing time the situation has changed. An alternative method of payment has been encouraged by reserve Bank of India which will make the process of banking system easier and bring safety, security and efficiency in the payment system. With the efforts of the Reserve Bank of India, the Indian banking sector has been progressing and trying to adopt and implement electronic payment to enhance the banking system.[5] The Reserve Bank of India has introduced Real Time Gross Settlement (RTGS) and National Electronic Funds Transfer (NEFT) and National Electronic Clearing Services which facilitates customer to adopt electronic method of payment. It is confirmed by the survey that use of electronic method of payment has increased over a period of time. The reason behind this is advancement in the technology, increasing awareness among the consumers and internet accessibility. The Reserve Bank of India has played pivotal role in the implementation of electronic payment system.

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