ACKNOWLEDGEMENT

ACKNOWLEDGEMENTI wish to express my heartful indebtness & deep sense of gratitude to all those

have contributed to this project.

To begin with, I would like to thank Prof. V.V.Ratna for giving me the

opportunity to experience the realistic work culture through this Training

Programme.

I am deeply indebted to my project guide Mr. Neel Kamal (Assistant Manager-

Commercial) for giving me his valuable time, advice, guidance, encouragement

and help during the course of my project and for allowing me to pursue the

summer training programme in 'PepsiCo' - a great place to work with.

And at last, I am thankful to all divine light & my parents & friends, who kept my

motivation and zest for knowledge always high throughout tides of time.

Regards,

Neha Singh

PGDM- 4th trimester

Jaipuria Institute of Management

Lucknow.

1

2

Having a sound, reliable and fast payment system is

not only important for the economy in general, the

financial system, but also for the institutions and

people having place in the economic world.

Any bottleneck in payment systems, will

successively affect the banks, the production sector, individuals and ultimately

the whole economy of a country. Hence, the payment system infrastructure, the

presence of which cannot be noticed under normal circumstances, has a

strategic importance for our country.

Payment and settlement systemsPayment systems also play an important role in the implementation of

monetary policy as they provide the conduit through which policy signals are

transmitted. The central bank of any country is usually the driving force in the

development of the national payment system. The Reserve Bank, like other

central banks, has been endeavoring to develop the payment and settlement

systems in India on a safe, sound, secure and efficient basis. With these

objectives in view, the Reserve Bank took several initiatives during 2007-08.

The branch coverage both for national electronic funds transfer (NEFT)

system as also the real time gross settlement (RTGS) system expanded

during the year as a result of the combined efforts of the Reserve Bank and the

banks.

3

Since payment systems can contribute to spreading problems from one system

participant to the others, the central banks are becoming increasingly aware of

risks inherent to these systems. Although it is normally considered very unlikely

that payment systems will trigger systemic crises, the potential consequences are

vast and might thus pose a threat to both domestic and international financial

stability.

Payment System Risks

Central banks are paying increasing attention to the various types of risk associated

with the use of payment systems. Reason- [1] the mutual exposures of the system

participants have increased considerably as payment systems have expanded by

transaction volume. [2] The substantial potential losses in a payment system are to

a particular extent related to its role as a possible source of contamination.

The probability of the majority of payment system risks occurring is very small,

but the potential losses to the system participants can be considerable and thus

pose a threat to financial stability.

Payment system risks are normally classified as follows:

Credit Risk: The risk that a participant in the system goes into

compulsory liquidation or is otherwise unable to meet its full financial obligations

at the expected time or later.

Liquidity Risk: The risk that a participant in the system does not have

sufficient liquidity to meet its obligations at the expected time-although the

participant in question may be able to meet its obligations at a later time.

4

Operational Risk:

The risk that operational factors, e.g. system downtime or operational errors, result in

or amplify credit or liquidity risks.

Legal Risk :

The risk that an inadequate legal basis for the system results in or amplifies credit or

liquidity risks.

Systemic Risk:

The risk that one participant's difficulties in meeting its financial obligations or

problems inherent to the system itself, spread to other participants in the system or

to other areas of the financial sector.

Internationally, a number of other methods are applied to reduce or eliminate credit

and liquidity risks in netting systems:

Limits to the size of participants' mutual bilateral and/or multilateral positions.

This reduces both risks.

More intra-day net settlements, as seen in the "hybrid systems". This

combines the advantages of RTGS systems with the reduced liquidity requirements

of netting systems.

Loss distribution agreements to ensure that clearing can take place even if one

or several participants cannot meet their obligations. The agreements are often

structured to ensure that a situation where the participant with the largest payment

obligation is disregarded can be handled.

5

A sound legal framework is an important

requirement for the safe and efficient functioning of

the payment and settlement systems. The Payment

and Settlement Systems Act, 2007 was notified on

December 20, 2007. The Act came into effect on

August 12, 2008. The regulations framed under the

Act i.e., Board for Regulation and Supervision of

Payment and Settlement Systems Regulations,

2008 and the Payment and Settlement Systems

Regulations, 2008, were also notified on August 12,

2008.

The Payment and Settlement Systems

Act, 2007 has designated the Reserve Bank as the authority to regulate and

supervise the payment systems in the country, including those operated by non-

banks such as the CCIL, card companies, other payment system providers and all

prospective organizations for payments. The netting procedure and settlement

finality, earlier governed by contractual agreement/s, have been accorded legal

recognition under the Act. The entities that want to operate or continue to operate a

payment system would need to apply to the Reserve Bank for authorization.

The other powers vested with the Reserve Bank under the Act include laying down

operational and technical standards for the various payment systems, calling for

information and returns/ documents from the service providers and imposing fines

on failure to do so or on providing false information. The Reserve Bank is

empowered to issue directions and guidelines to the system providers, prescribe the

duties to be performed by them and audit and inspect their systems/premises.

The Payment and Settlement Systems Regulations, 2008 cover:

6

(a) Authorization of payment systems including the form and manner of

submission of application for authorization of commencement/ continuation of a

payment system and grant of authorization certificate; (b) payment instructions and

determination of standards; (c) furnishing of returns, documents and other

information; and (d) furnishing of accounts and balance sheets.

Board for Regulation and Supervision of Payment and Settlement

Systems (BPSS)

The BPSS, which was earlier constituted under the RBI Act, 1934, has since been

reconstituted under the Payment and Settlement Systems Act, 2007. The BPSS

Regulations 2008, cover: (a) composition of the Board; (b) functions and

powers of the Board; (c) powers to be exercised on behalf of the Board; and

(d) constitution of subcommittees and advisory committees. The BPSS meets

regularly and gives directions for bringing in efficiency, safety and customer

convenience in the payment and settlement systems. Some of the areas in which

the Board has provided direction include preparation of a framework for

payments through mobile phones, extension of the jurisdiction of magnetic

ink character recognition (MICR) clearing houses and computerization of

non-MICR clearing houses, launching the Indo-Nepal remittance system,

making use of electronic mode of payment mandatory for large value

transactions, making all RTGS branches NEFT-enabled while upgrading the

NEFT system into a round-the-clock type remittance system, exploring the

feasibility of developing a domestic card to inject competition in the market in a

non-discriminatory manner, facilitating optimum use of ATMs by rationalizing

cash withdrawal/balance enquiry charges and disseminating information on major

payment services offered by banks including the service charges and quantum of

compensation to be paid by banks for deficiency in those services. 7

Core Principles for Payment Systems • Who determined them?

• What are they? What are they not?

• Who are concerned with them?

• Core Principles in headlines?

• Systemically important payment systems

• Responsibilities of Central Banks

Who determined them? The Core Principles for Systemically Important Payment Systems have been determined

by the Committee on Payment and Settlement Systems (CPSS) of the Bank for

International Settlements (BIS) as a result of a study that aimed observing developments

in payment systems field, determining the problems, and searching for the solutions.

What are they? What are they not?

The core principles do not define

•• the functions provided by a "good" payment system

•• the steps of the procedure to be followed in developing an individual payment

system.

Rather, they suggest the key characteristics that all systemically important

payment systems should satisfy.

Who are concerned with them?

8

Not all payment systems in a country are required to comply with the core

principles. On the other hand, having "Systemically important payment systems"

in compliance with the core principles is critical for the effectiveness of the

financial system.

The designers, operators and overseers of such payment systems are directly

concerned with the core principles; whereas the participants are indirectly

concerned.

Core Principles in headlines

I. The system should have a well-founded legal basis under all relevant

jurisdictions.

II. The system's rules and procedures should enable participants to have a clear

understanding of financial risks.

III. The system should have clearly defined procedures for the management of

credit risks and liquidity risks.

IV. The system should provide prompt final settlement on the day value.

V. A system in which multilateral netting takes place should be capable of ensuring

the timely completion of daily settlements.

VI. Assets used for settlement should preferably be a claim on the central bank.

VII. The system should ensure a high degree of security and operational reliability.

VIII.The system should provide a means of making payment that is practical for its

users and efficient for the economy.

IX. The system should have objective and publicly disclosed criteria for

participation, which permit fair and open access.

X. The system's governance arrangements should be effective, accountable and

transparent.

9

BACKGROUND AND OBJECTIVE

The Reserve Bank of India has taken various initiatives for modernizing the

Payment and Settlement System in the Country. Information technology has been

identified as an integral component in the design and development of modern

payment system. Keeping in view the need for a robust integrated Payment and

Settlement System and focusing on use of the state of the art technology in the

modernization of the payment of Settlement System, a beginning was made on,

March 26, 2004 with roll out of the Real Time Gross Settlement (RTGS)

System.

Following the flagging off RTGS, IBA thought it appropriate to team up with

LOGICA CMG, an international IT solution provider, to conduct a half a day

seminar on RTGS Readiness. The seminar will address the key issues of RTGS viz.

technical aspects on RTGS infrastructure, Impacts and benefits, Intra-day liquidity

policy, Intra-day liquidity solution, Procedures and operational issues in RTGS

implementation, Potential future of RTGS etc.

10

11

12

13

14

15

16

Reserve Bank of India has taken up initiative to establish an integrated

payment and settlement system in the country. Real Time Gross Settlement is

one of the projects taken up by RBI in this regard.

Real Time Gross Settlement System (RTGS) is the ultimate in the payment and

settlement architecture in any country primarily for online, real time inter bank

payment and settlement of large value funds.

In other words, this is an electronic payment processing environment where

payment instructions are processed on continuous / on real time basis and settled

on gross / individual transaction basis without netting the debits against credits.

17

What is Real Time Gross Settlement System? Real Time Gross Settlement (RTGS) system, introduced in India since March 2004, is a

system through which electronic instructions can be given by banks to transfer funds

from their account.

The RTGS is a system, which provides real-time online settlement or payments

among banks and financial institutions. In this system payment instructions

between banks are processed and settled individually and continuously

throughout the day. A lag between the time at which information is made

available to receiving banks and the time at which settlement takes place may

have important risk implications in large funds transfer system. This is in

contrast to net settlements where payment instructions are processed throughout

the day but inter-bank settlement takes place only afterwards typically at the end

of the day. Payee banks and their customers receive funds with certainty, or so-

called finality, during the day, enabling them to use the funds immediately

without exposing themselves to risk. To initiate a funds transfer, the sending

bank dispatches a payment message, which is subsequently routed to the central

bank and to the receiving bank as the system process and settles the transfer.

RTGS system settles payments on a transaction-by-transaction basis as soon as

they are accepted by the system. RTGS system does not create credit risk for the

receiving participant because the settlement takes place individually. RTGS

system can require relatively large amounts of intra-day liquidity because

participants need sufficient fund in the settlement account to cover their

outgoing payments. The cost of intra-day liquidity depends on variables such as

amount required, the opportunity cost of maintaining liquid balances and the

cost of intra-day credit. Once RTGS is implemented all the inter-bank

settlement will be done on a real time basis.

RTGS is a software package which provides online settlement of payments

between financial institutions.

18

In this system payment instructions between banks are processed and settled

individually and continuously throughout the day. A lag between the time at

which information is made available to receiving banks and the time at which

settlement takes place may have important risk implications in large fund

transfer systems.

To initiate a funds transfer, the sending bank dispatches a payment message

which is subsequently routed to the central bank and to the receiving bank as the

system processes and settles the transfer.

RTGS system settles payments on a transaction-by-transaction basis as soon as

they are accepted by the system.

RTGS systems do not create credit risk for the receiving participant because

they settle each payment individually, as soon as it is accepted by the system for

settlement.

RTGS system can require relatively large amounts of intraday liquidity because

participants need sufficient liquidity to cover their outgoing payments. The cost

of intraday liquidity depends on variables such as amount required, the

opportunity cost of maintaining liquid balances and the cost of intraday credit.

The RTGS system is suited for low-volume, high-value transactions. It lowers

settlement risk, besides giving an accurate picture of an institution's account at

any point of time.

In RTGS systems each payment is settled individually and immediately.

Usually, the transaction volume in RTGS systems is very high.

Who manages RTGS ?

World over, the central banks manage RTGS systems because the all banks in

a country maintain a current account with the central bank. Accordingly, in

India, it is being managed by RBI.

19

RTGS - Salient features

RTGS is a payment gateway under the close supervision of RBI, working on

the electronic message communicating system. Each bank will have a central

hub, which is connected to RTGS. Inside each branch the message

communication takes place through individual Wide Area Network. RTGS will

use the secured INFINIT network of RBI. It uses the Secured Financial

Messaging Service (SFMS) message for the communication between Internal

Core banking solutions (for us Anywhere Banking) and the RTGS application.

Participants will have to maintain a dedicated RTGS settlement account with

RBI for outward and inward RTGS payments. This account will be an intra

day account. The account will be funded at the start of day from a current

account held with RBI, Mumbai. The balance in this account at the end of day

is swept back to the current account and thereby zeroing the RTGS settlement

account. Payment transactions emanating from a participant are 'processed by

the RTGS strictly in First in First out (FIFO) basis. However to enable the

participants to take care of urgent or time critical payments and to enable more

effective fund management, the system allows the participants to assign

priorities to their payment messages and thereby enabling a particular

transaction to be processed before other transactions, which was submitted

earlier to the system. Payment transactions emanating from a participant are to

be settled immediately when it is received.

Summarized Product Features

RTGS is applicable for payouts in excess of INR 100000

Smooth, safe and fastest mode of transferring money across the banks in

India

RBI's RTGS guidelines require the beneficiary bank to credit the

beneficiary's account or return the funds, within a maximum time of 2 hrs.20

RTGS is an effective collections mechanism as funds from across the

country can be collected & credited to your account on the same day

An efficient mechanism for outstation payments and collections. Payments

can be made to or received from across the country on a same-day basis

Over 34,000+ bank branches participate in RTGS (as at 07)

Efficient working capital management by enabling negotiation of better

terms with suppliers & by facilitating speedy collection of funds

Simplifies account reconciliation due to predictability of funds flow.

Savings of time and cost involved in physical dispatch of cheques to

beneficiaries, deposits of cheques by beneficiaries with their banks & clearing

of these cheques.

Reduced chances of frauds typically associated with paper-based payments

SECURITY FEATURES:

It is a highly secured system using Public Key Infrastructure (PKI). This

includes Signing and encryption of hash. Decryption and verification of hash

Signing of Message, verification of message. Each participant will be a

Registering Authority and the Controlling Authority (IDRBT, RBI) will issue

the digital certificates. An online backup (mirror) system will be set up in

Mumbai and the DRS will be at Hyderabad office of RBI.

Transactions Supported:

• Inter-bank Payments

• Customer Payments

• Own Account Transfers

21

• Net Clearing

• Other transactions not initiated by the Bank (e.g. RBI Initiated transactions)

Our Treasury Department can effectively utilize this system for transferring

funds to other banks. This can also be utilized for Call money operations, Inter

Bank TT and all Deposit transactions. Customer payments like inter-bank fund

transfer could be enabled with implementation of RTGS. RTGS system is

hosted at the RBI center, Mumbai. Each PI will have several client machines

connected to PI interface.

Process Flow

Fund transfer from Federal bank Ernakulam North Branch to ICICI bank Delhi

branch:

1. Branch EKMA will generate a request for fund transfer to Federal bank

F&I Mumbai Using AWB.

2. F&I Mumbai will communicate with the Federal bank Participant Interface

(PI), generate message and route it to RTGS system.

3. RTGS system in turn will route the message to PI of ICICI bank.

4. ICICI - PI will send the message to ICICI -F&I.

5. Service branch of ICICI will have to give the Credit to their Delhi branch

by the prevailing mechanism with ICICI.

PI

F & I MUMBAI

EKMA

PI

F & IICICI

ICICI DELHI BRANCH

RTGS

22

Need for RTGSUnder the existing system, the settlement of the all individual payments takes place on

a net basis (i.e. difference of payment to be received and payment to be made) and that

too at a designated time. This causes the system participants to be exposed to financial

risks for the period during which settlement is deferred. Due to such delays in

settlement, a no. of capital market and money market frauds have taken place in India

in the recent years. Further, the existing payment system is capable to meet the

requirement of the 80s or 90 when the no. and volume of financial transactions was

limited. But, due to change in the economic perspective, its linkage with the global

economies and the role of information technology, need has been felt for a more

accurate, risk free, efficient and effective system. RTGS is an internationally

compatible and transparent-system which could be used to the full advantage of the

existing client base without dispensing with the benefits already available to customers.

One advantage of all RTGS systems is that in principle they eliminate credit risks for

the receiving bank. On the other hand, there is always a liquidity risk. RTGS systems

generally require more liquidity than netting systems since the participants must

continuously ensure that they have funds to cover their outgoing payments. The banks'

opportunities to remit payments will thus to a large extent depend on when incoming 23

payments are received during the course of the day. Queues may thus occur in an

RTGS system. Such problems are amplified in systems with scarce liquidity.

Access to the RTGS system is provided via a highly secure PC-based system, using a

secure extra net or Internet connection. Because of its immediacy and convenience,

RTGS payments are expected to surpass bank cheques and telegraphic transfers in the

near future.

Payments in RTGS systems are typically credit transactions, i.e. payments initiated by

the remitter (debtor).

The scale of today's payments and securities transactions between financial institutions

makes electronic settlement a requirement. Indeed, it is a fundamental precondition for

secure and efficient settlement and thereby for a well-functioning financial sector,

which is beneficial to economic growth and prosperity.

Most countries today have built up a payments infrastructure based on electronic

payment systems. Not all payments are settled via these systems, however, as some

payments are still settled outside the infrastructure, typically via correspondent banks.

24

Working of RTGS system:

OPERATIONAL FLOW

Institutions and individuals use RTGS when they need to transfer funds from one bank

to another. For example:

You may want to use your deposit at Bank A to send a payment to a person having

an account at Bank B (see Figure, Step 1).

Upon your order, Bank A sends a payment message, which includes necessary

details like the sender, the

beneficiary and the value, to RTGS

(Step 2).

RTGS promptly processes the

incoming payment message. If the

balance of the account of Bank A

at RTGS is sufficient, the payment

is transferred from Bank A to Bank

B within a few seconds (Step 3).

Otherwise, the payment is queued.

25

Bank B credits the account of the beneficiary (Step 4).

Although RTGS carries out the operations in real time, bank customers may sometimes

notice delays that may arise from operations and internal practices of Bank A and Bank

B.

RTGS is a crediting system. In other words, a participant can only credit another

participant's account.

Settled payments cannot be cancelled or revoked. In case of an erroneous payment, Bank

A and Bank B should agree for the reimbursement.

Operational hours The RTGS operate between 8.00 AM and 8.00 PM every weekday, except for the official

holidays. The systems close at 1 PM on half workdays.

The systems have a phased online closure facility that allows closing certain operations

at distinct times during the workday. The CBRT makes arrangements concerning the

phased online closure and announces them to Participants

Payment systems trend in economically and technically developed countries is towards

establishing real-time gross settlement (RTGS) systems.

Similarly, EU countries had developed RTGS systems prior to the monetary union. By

means of TARGET, which connects RTGS systems of EU countries, easy and fast

transfer of cross-border euro (€) payments became possible.

26

27

GRIDLOCK AND DEADLOCK Queuing in an RTGS system can be a consequence of an inappropriate distribution of

liquidity between the participants (gridlock), or a shortage of liquidity in the overall

payment system (deadlock). Deadlock can only be resolved by contributing further

liquidity to the payment system. Gridlock can also be resolved by redistributing liquidity

among the participants.

28

Gridlock can also occur if some participants minimize their liquidity requirement by not

remitting payments until they receive incoming payments. This can lead to a situation

where the participants are awaiting each other's payments and where some participants

cannot settle their payments due to tack of liquidity.

PROCEDURE FOR CUSTOMER & CHARGES Where a customer, instead of using cheque or bank draft, wants to use the RTGS, he will

have to go to an RTGS-enabled bank branch where he maintains his account and give

online instructions for the funds to be credited to the beneficiary's account, maintained in

a bank branch having RTGS linkage. The funds would be transferred instantaneously.

RBI would recover Rs.25 for each transaction but banks will have their own charges to

vary from bank to bank.

Benefits of RTGS:

By using this system you are able to provide your customers with electronic, irrevocable

real-time settlement clearing for high value transactions.

29

The RTGS facility delivers the following benefits:

Electronic transaction processing through SWIFT

Guaranteed irrevocable payment delivery in real time

High levels of security for important/urgent intra-day transactions

Enquiry and trace functions

Transaction history

Industry representation at the APCA Management Committee for high value

transactions.

Speed : The beneficiary branches are expected to receive the funds in real time ,soon

after the funds are transferred by the remitting bank.

Quicker settlement cycles: Cuts across inter-bank and clearing house settlement issues.

Wider Boundaries: No geographical limitations within India, as long as it are a

participating bank in the RBI's RTGS system.

30

Key Advantages: Available to all All our Net banking (existing & new) users are eligible to utilize this on-line facility.

It’s simple, convenient, quick and secure Users can transfer funds to the beneficiaries in other banks in a simple. Convenient

and seamless manner.

Funds transfer to other banks is faster, secure and safe.

Anytime, anywhere ... Simple and easy to operate - from home I office anytime, anywhere.

Save time and energy.

Get more for less RTGS/NEFT cost less than the conventional modes of remittance such as DD/MT

I. To the economy: RTGS will reduce the systemic risk that exists in the present settlement Systems like

cascading affect on banks due to failure of one bank to meet its settlement commitments

It improves confidence of out side agencies like World Bank in Indian Economy.

It enables efficient settlements and avoids settlement delays

II. To the Banks: It offers immediate and irrevocable settlement

It provides for high value inter bank funds transfer

It has the potential to formulate new products by individual banks based on RTGS.

III. To customers: They can get new banking services based on reliable high value funds transfer system.

The RTGS solution provides for a separate transaction type which can be used to

transmit the customer information along with the payment message to the beneficiary's

bank in a structured format.

31

ABOUT COMPANY:

PepsiCo Mission "To be the world's premier consumer products company focused on

convenience foods and beverages. We seek to produce healthy financial rewards to

investors as we provide opportunities for growth and enrichment to our employees,

our business partners and the communities in which we operate. And in everything

we do, we strive for honesty, fairness and integrity."

PepsiCo in India PepsiCo entered India in 198$ and has grown to become one of the country's leading

food and beverage companies. One of the largest multinational investors in the

country, PepsiCo has established a business which aims to serve the long term

dynamic needs of consumers in India.

PepsiCo India and its partners have invested more than U.S. $1 billion since the

company was established in the country. PepsiCo provides direct and indirect

employment to 150,000 people including suppliers and distributors.

PepsiCo nourishes consumers with a range of products from treats to healthy eats

that deliver joy as well as nutrition and always, good taste. PepsiCo India's expansive

portfolio includes iconic refreshment beverages Pepsi, 7 UP, Mirinda and Mountain

Dew, in addition to low calorie options such as Diet Pepsi, hydrating and nutritional

beverages such as Aquafina drinking water, isotonic sports drinks - Gatorade,

Tropicana 100% fruit juices, and juice based drinks - Tropicana Nectars, Tropicana

Twister and Slice. Local brands - Lehar Evervess Soda, Dukes Lemonade and

Mangola add to the diverse range of brands.

PepsiCo's foods company, Frito-Lay, is the leader in the branded salty snack market

and all Frito Lay products are free of trans-fat and MSG. It manufactures Lay's

Potato Chips; Cheetos extruded snacks, Uncle Chips and traditional snacks under the

Kurkure and Lehar brands. The company's high fibre breakfast cereal, Quaker Oats,

and low fat and roasted snack options enhance the healthful choices available to

32

consumers. Frito Lay's core products, Lay's, Kurkure, Uncle Chips and Cheetos are

cooked in Rice Bran Oil to significantly reduce saturated fats and all of its products

contain voluntary nutritional labeling on their packets.

The group has built an expansive beverage and foods business. To support its

operations, PepsiCo has 43 bottling plants in India, of which 15 are company owned

and 28 are franchisee owned. In addition to this, PepsiCo's Frito Lay foods division

has 3 state-of-the-art plants. PepsiCo's business is based on its sustainability vision

of making tomorrow better than today. PepsiCo's commitment to living by this

vision every day is visible in its contribution to the country, consumers and farmers.

Our Commitment Our values reflect our aspirations - the kind of company we want Pepsico to be. We

express our values in the form of a commitment. Our commitment is :

Sustained Growth is fundamental to motivating and measuring our success. Our

quest for sustained growth stimulates innovation, places a value on results, and helps

us understand whether today's actions will contribute to our future. It is about growth

of people and company performance. It prioritizes making a difference and getting

things done.

Empowered People means we have the freedom to act and think in ways that we feel

will get the job done, while being consistent with the processes that ensure proper

governance and being mindful of the rest of the company's needs.

Responsibility and Trust form the foundation for healthy growth. It's about earning

the confidence that other people place in us as individuals and as a company. Our

responsibility means we take personal and corporate ownership for all we do, to be

good stewards of the resources entrusted to us. We build trust between ourselves and

others by walking the talk and being committed to succeeding together.

33

RTGS AT PEPSICONEED FOR RTGS

Earlier Practice:

• Distributors giving DD no. over phone.

• DD collectors to collect ODs from Distributor point, normal DD transit time 3 to 4

days.

Draw back in existing system:

Possibility of errors in recording DD transit over phone.

Risk of DD fudging by the Distributors.

Huge cost of DD collectors.

Distributors incurring huge amount on DD commission as high as Rs. 2.75 per

thousand.

PIH getting credit of DD in 6 to 7 days of dispatch of goods (3 to 4 days transit+3 days

local collection).

IMPLEMENTATION OF RTGS

RTGS is implemented in UP effective May 24th 2009.

VIRTUAL ACCOUNT OPENING

Any Distributor who wants to pay through RTGS will have to have a virtual

account code.

Territories to send code opening request giving following details-

- Code opening request is sent to au treasury which takes 3 to 4 days time.

- Once virtual account is opened, the Distributor can transfer money through RTGS giving

his account no (In case of Pinnacle, its 17402285) and PIH IFSC no which is CITI-

0000002, common for all the Distributors.

34

Frequency OF REPORTS Received FROM citi BANK We get virtual account credit reports from Citibank at 11, 2, 5 and 8 o'clock every day.

For example-

- If any Distributor deposits money at 100'clock, it will appear in the report received at 11

- If the deposit is done at 11:30, it will appear in the report received at 2 o’clock.

PROcESS IMPLEMENTATION Citi bank virtual account credit report is received at unit office at ii, 2, 5 and 8 0'

clock every day.

Upon receipt of reports, credit is passed on to customer with in half an hour.

For instance, if a customer deposits amount in bank at 10.30, it will appear in the

report at 11. If deposit is made at 11.15, it will appear in the next report at 20'

clock.

ACCOUNTING Upon receipt of report, Distributor wise summary is prepared as-

TRANSACTIONS SUMMARY

Customer

35

Entry at Unit Office

Entry at Delhi Office

RECONCILIATIONEvery morning, transactions of the previous day in Citibank collection ale are reconciled

and summarized as follows-

Every entry made by unit office should have a corresponding credit entry from BU. For

each transaction, there will be two document nos., one passed at unit office and the

corresponding passed by head office. Reconciliation will be done every day.

36

BENEFIT TO PEPSICO • RTGS systems do not create credit risk for the receiving participant.

• Simplifies account reconciliation due to predictability of funds flow.

• Savings of time involved

In physical dispatch of cheques to beneficiaries.

Deposits of cheques by beneficiaries with their banks.

Clearing of these cheques.

• Reduced chances of frauds typically associated with paper-based payments.

• PIH saves on DO collection charges as high as 35 lac a year.

• Safe transactions, risk on DD in transit ruled out.

• PIH gets instant credit as against minimum 7 days in DD transit scenario.

• No risk of DD fudging.

Operations tightly under control, no violations, Citi Bank account being reconciled on a

daily basis.

BENEFIT TO DISTRIBUTOR Forget about writing out & sending cheques! DD's or Pay Orders to the payee for

amounts above Rs. 1,00,000 /-.

Free from the worry of instruments lost / misplaced in transit.

Transact from the comfort of your home or office through Internet Banking of Bank.

Faster transactions, with in two hours of deposit, credit will be passed on to the

Distributors accounts where as DDs are given by bank only after 4 o'clock in the

evening.

Profitability of the Distributor is increased, saving in DD commission.

They can get new banking services based on reliable high value funds transfer

system.

37

The RTGS solution provides for a separate transaction type which can be used to transmit

the customer information along with the payment message to the beneficiary's bank in a

structured format.

Maximum amount transfer=50 lacs

Saving in bank commission, Rs 251- up to Rs 1,00,000/- and Rs 50/- max in RTGS against

Rs 2.75 per thousand DO commission.

FUTURE PlAN Cover all distributors.

Simplify the process of credit.

To work close with BU Treasury for automation of entries.

To coordinate with Citibank for customized reports.

100% implementation of RTGS by 1st October, no DDs to be accepted for

transactions.

For new Distributors, RTGS code to be opened right at the time of code opening.

CHALLENGES INVOLVED Cooperative Banks don't have RTGS facility.

Connectivity Problem.

Lack of knowledge.

As a consequence of the ongoing individual settlement of payments in RTGS

systems, the participants have a large intraday liquidity requirement.

Participants can manage their own outgoing payments, but do not usually know with

certainty when incoming payments will be received.

Coaching and convincing the Distributors as well as front line.

Leverage IT support, viewing virtual accounts summary, viewing other reports in

Citibank domain.

Opening of virtual accounts in Citibank, taking a lot of time.

Setting the process to account for RTGS entries at unit office.

38