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Private banks eye clearing biz

Private banks are awaiting the Reserve Bank’s approval to take up the role of a primary clearing house in areas that do not have clearing houses.

business Updated: Jun 10, 2010 21:33 IST

Private banks are awaiting the Reserve Bank’s approval to take up the role of a primary clearing house in areas that do not have clearing houses.

Though credit cards, cheques and account-to-account transfers are growing, as much as 70 per cent of the nation’s dealings still take place in cash, say bankers. Clearing houses speed up the clearance of cheques and more of them will result in a higher share of transactions to be conducted in secondary instruments like cash. Banks can gain in the process because the share of money leaving the banking system will come down as a result.

“Most people in small towns use cash because they do not have an efficient way of money movement and also they are not educated on the options available,” said a senior official at a leading private sector bank.

The business of a primary clearing house is currently performed by the public sector banks but private banks who have put in their request with RBI to allow them entry into new areas are expecting the RBI’s approval.

As of now there are 1,200 centres clearing houses. “We are looking at running clearing houses in the next 2,000 areas, where there is no e-banking or clearing house but the population and trade is significant,” said the official. “We are working with RBI and they are evaluating it positively.”

The official said that efficient movement of funds is very important for a growing economy as India lags significantly to the developed nations on this front.

“The money moves very fast in the West. While we are good at the options available but from a reach perspective we are way behind,” said the official.

Thus the effort has to be made to reach out to such areas to make the money flow more efficient and transparent.