Bank of baroda

RTGS Implementation in India
With the commencement of operations of the Real Time Gross Settlement (“RTGS”) system from March 26, 2004, India
crossed a major milestone in the development of systemically important payment systems and complied with the core
principles framed by the Bank for International Settlements. As of March 31, 2005, there are 95 direct participants in the
RTGS system, including us. The salient features of the RTGS are as follows:
Payments are settled transaction by transaction for high value and retail payments;
Settlement of funds is final and irrevocable;
Settlement is done on a real time basis and the funds settled can be further used immediately;
It is a fully secure system which uses digital signatures and public key infrastructure based inscription for safe and
secure message transmission;
There is a provision for intra-day collaterised liquidity support for member banks to smoothen the temporary mismatch
of fund flows; and
RTGS provides for transfer of funds relating to inter bank settlements as also for customer related fund transfers.
More than 75% of the value of inter bank transfers, which was earlier being settled through the deferred net settlement
systems based inter-bank clearing, is now being settled under RTGS.
Exchange Controls
Restrictions on Conversion of Rupees
There are restrictions on the conversion of Rupees into U.S. Dollars. Before February 29, 1992, RBI determined the
official value of the Rupee in relation to a weighted basket of currencies of India’s major trading partners. In the February
1992 budget, a new dual exchange rate mechanism was introduced by allowing conversion of 60.0% of the foreign

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BANK OF BARODA
exchange received on trade or current account at a market-determined rate and the remaining 40.0% at the official rate.
All importers were, however, required to buy foreign exchange at the market rate except for certain specified priority
imports. In March 1993, the exchange rate was unified and allowed to float. In February 1994 and again in August 1994,
RBI announced relaxations in payment restrictions in case of a number of transactions. Since August 1994, the Government
of India has substantially complied with its obligations owed to the International Monetary Fund, under which India is
committed to refrain from using exchange restrictions on current international transactions as an instrument in managing
the balance of payments. Effective July 1995, the process of current account convertibility was advanced by relaxing
restrictions on foreign exchange for various purposes, such as foreign travel and medical treatment.
In December 1999, the Indian parliament passed the Foreign Exchange Management Act, 1999, which became effective
on June 1, 2000, replacing the earlier Foreign Exchange Regulation Act, 1973. This legislation indicated a major shift in
the policy of the Government with regard to foreign exchange management in India. While the Foreign Exchange Regulation
Act, 1973 was aimed at the conservation of foreign exchange and its utilization for the economic development of the
country, the objective of the Foreign Exchange Management Act, 1999 was to facilitate external trade and promote the
orderly development and maintenance of the foreign exchange market in India.
The Foreign Exchange Management Act, 1999 regulates transactions involving foreign exchange and provides that
certain transactions cannot be carried out without the general or special permission of RBI. The Foreign Exchange
Management Act, 1999 has eased restrictions on current account transactions. However, RBI continues to exercise
control over capital account transactions (i.e., those which alter the assets or liabilities, including contingent liabilities, of
persons). RBI has issued regulations under the Foreign Exchange Management Act, 1999 to regulate the various kinds
of capital account transactions, including certain aspects of the purchase and issuance of shares of Indian companies.
RBI has also permitted authorized dealers to freely allow remittances by individuals up to U.S.$25,000 per calendar year
for any permissible current or capital account transactions or a combination of both.