Nepal has formally started laying the groundwork to settle large-value and urgent interbank payments within several minutes.
The process to modernise the country’s payment system started after the UK-Nepal Access to Finance for the Poor Programme (Sakchyam), a project funded by the British government’s Department for International Development (DFID), on Friday, sought expressions of interest (EoI) to install the Real Time Gross Settlement (RTGS) system at the Nepal Rastra Bank, the central bank.
Sakchyam has been helping the NRB modernise Nepal’s payment system, and installation of the RTGS system, which is crucial to meet international payment standard, is a part of that process. Sri Lanka introduced the RTGS system in 2003, while India introduced the system on a pilot basis in March, 2004.
“We have asked Sakchyam to install the system within 18 months of appointment of the contractor,” a senior NRB official said on condition of anonymity. However, Sakchyam, in its request for EoI, has asked the contractor to install “a state of the art RTGS within 12 months of contract signing”.
The RTGS is a system which enables processing and settlement of large-value payments and urgent payments of smaller amount within several minutes or even a few seconds, albeit the NRB is yet to define “large-value payments”. Currently, it takes a few hours to settle high-value and urgent payments.
Real-time settlement will allow banks and financial institutions to effectively manage liquidity while eliminating systemic risk of payment settlement inherent in the existing system, according to the NRB official.
At present, Nepal Clearing House Limited (NCHL), a public company established jointly by the NRB, and banks and financial institutions, among others, is handling most of the work related to clearing and settlement. It is currently using interbank payment system to transfer funds between accounts of different banks and financial institutions. However, settlement of payments of over Rs200 million is processed manually as per the instruction issued by the NRB.
The new system is, thus, expected to benefit the NRB, the Ministry of Finance (MoF) and other government agencies that are customers of the NRB, banks and financial institutions, other deposit-taking institutions, NCHL and Nepal Stock Exchange, among others.
The new system, according to Sakchyam, will be compatible with other components of Nepal’s payment system, namely NCHL, the planned Central Securities Depository, and card and mobile payment services. It will also have
the ability to track suspicious transactions related to money laundering and terror financing.
The system, according to request for EoI issued by Sakchyam, should be able to support at least 20,000 payments per day, with 5,000 payments per hour at peak times. It should also support settlement of payments in Nepali rupee, US dollar, euro, sterling pound and Indian rupee, with the potential to add other currencies as required.
“We will accept the system installed by Sakchyam only after conducting user acceptance test and ensuring the software and network system are compatible with those of banks and financial institutions,” said the NRB official.
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