AP (Advanced Placement) Macroeconomics Financial Sector-Banking Terms and Persons (Page 33 of 51)

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Operational Creditor under IBC

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An Operational Creditor is the entity who has a claim (over the corporate who owes some debt) for providing any of the four categories to the defaulted corporate- goods, services, employment and Government dues (central Govt, state or local bodies) . Basically, the operational creditor provides some goods and services to the corporate. Example is iron ore supplier or coal supplier to an iron and steel factory. Operational creditor under the Insolvency and Bankruptcy Code has only less role during the resolution process. He is not a member of the Committee of Creditors (CoC) and he doesn՚t have any voting power under the CoC. The other type of creditor in the case of defaulting corporate is the Financial Creditor.

Operational Creditor – Claim over the corporate for giving goods, services, employment and government services.

Financial Creditor – gives funds in the form of loans to the corporate and buys bonds etc. of the corporate.

Payment and Settlement System

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Payment and settlement system means the financial infrastructure that carries out payment and settlement between banks and other institutions. Since banks are the medium through which payments are made, the payment and settlement system manage the interbank transactions and settles them. The payment and settlement system comprise of several arrangements like Real Time Gross Settlement, National Electronic Fund Transfer etc. and is designed and managed by the RBI. Payment and settlement systems are the backbone of the entire economic activities. In a financial system, individuals and business entities makes their payments to their counter parties through banks. Now, the payment system is moving from paper based to digital payments. Digital payment infrastructure in the country is growing fast especially after the establishment of NPCI and the Demonetisation induced digitalization drive. Hyper activity is going on in the digital payment segment and the RBI is regulating the activities with sophistication. Central banks including the RBI are having clearing houses to clear checks and drafts as well as settling the cash transactions of different banks on an interbank basis. Central banks՚ service as a payment and settlement facilitating institution is not over here. Now a day the RBI is using the opportunity of technology to make interbank payment and settlement more efficient and quick. Various facilities like Core Banking Solution, RTGS, NEFT, Online banking, Aadhaar based payment systems, UPI, BHIM, and Prepaid Payments Instruments etc. are used for payment facilitation. The government has enacted a specific legislation – Payment and Settlement System Act 2007 for supporting RBI. The National Electronic Transfer system was introduced in 2005.