The Reserve Bank of India (RBI) has hit recent headlines with its plan to introduce a new ‘Lightweight’ Payment and Settlement System (LPSS). This scheme, planned for inclusion in the 2022-23 fiscal year, is designed specifically for use during emergencies. The lightweight system’s goal is to ensure consistent operation of payment and settlement systems, despite adverse circumstances, achieving this through a highly efficient framework.
Understanding RBI’s LPSS Plan
The Lightweight Payment and Settlement System differentiates itself by being independent of the traditional technologies, including wired networks, that underlie existing payment systems such as UPI, NEFT, and RTGS. This novel approach is part of RBI’s ‘Utkarsh 2.0’ initiative, which aims to set up a robust infrastructure for supervising Centralized Payment Systems — more specifically, NEFT and RTGS. Upgrades are also planned for the RTGS system, including improvements to its existing functionality and the introduction of new capabilities.
Enhancing Payment System Resilience via LPSS
The LPSS mechanism is designed to ensure resilience and continuity of payment and settlement systems during volatile situations or emergencies. Traditional payment systems like UPI, NEFT, and RTGS, due to their reliance on complex wired networks and sophisticated IT infrastructure, can be easily disrupted by natural disasters or wartime activities. Such disruptions can lead to liquidity pipeline breaks, severely affecting essential payment services. LPSS offers a mobile, easily activated solution capable of remote operation with minimal resources, acting as a backup option for critical transactions, thereby maintaining stability and ensuring crucial payment services remain available.
Working Procedure of LPSS
The implementation of LPSS requires the deployment of a small, well-trained staff that handles payment and settlement operations securely and efficiently, cooperating with government agencies, financial institutions, market participants, and service providers. The system overlooks non-essential retail or individual transactions, focusing only on those transactions crucial for maintaining economic stability, such as government and market-related transactions.
Benefits of LPSS
There are numerous advantages to the deployment of the proposed LPSS platform. Firstly, it ensures almost zero downtime for the payment and settlement system during emergencies. It also facilitates the uninterrupted functioning of essential payment services, including bulk payments, interbank payments, and provision of cash to participant institutions. The LPSS system will enhance public trust in digital payments and financial market infrastructure and will act as a deterrent against harmful attacks or sabotage attempts on existing payment systems.
Challenges in Implementing LPSS
While the LPSS system holds great promise, its implementation isn’t without challenges. It requires careful planning and synchronization among various stakeholders to ensure readiness and effectiveness. Furthermore, tests and validation of functionality, security, and reliability need to be conducted before deployment. Frequent training programs and capacity building for staff are also necessary, along with continuous monitoring and evaluation of performance and impact.