Mumbai, December 12: Although Modi government is relying high on using “bait” of “card transaction waiver” to attract more people to digital banking modes, the Reserve Bank of India (RBI) is not amused by the proposal to extend these benefits till March 31, and asked the government to consider banks’ concerns instead.
Recently Finance Minister Arun Jaitely announced a series of discounts and waivers to promote card payments and e-banking till December 30 as government’s major step to cashless India.
Read More: Government wakes up to ease digital-payment
According to Economic Times, the RBI deputy governor R Gandhi has questioned the government’s proposal to dramatically lower charges on debit card transactions post demonetisation for pushing up Digital India story in a meeting with a Cabinet Minister and other government officials. Large banks like SBI and ICICI have also echoed with the voice of Gandhi.
As per the report, in multiple meetings and video-conferences between the banking regulator, large banks, a cabinet minister and other senior government functionaries, it was proposed by the government to either remove or lower down the merchant discount rate (MDR) till March 31, 2017 to boost up card transactions. (MDR is basically charged to a merchant by a bank for providing card services.)
The Deputy Governor of RBI, R Gandhi, however responded in the meeting that such a move could make the business unsustainable for many banks. Major lendors like SBI and ICICI also expressed their fears about the proposal.
Gandhi said that waiver in card charges should only be imposed after keeping in mind the cost considerations for banks.
As per the report, the government is keen to significantly lower charges for transactions below Rs 1,000 and Rs 2,000 where charges vary from 75 to 100 basis points.
At present there is too much confusion and too little user education. The government is in a hurry. Banks are requesting the government not to sacrifice commercial considerations.
It was also discussed in the meeting if this could be applicable for merchants located in smaller towns as they account for only a small share of the card transactions. But this was discharged on the account of monitoring and compliance challenge.
It is important to note here that top merchants like large retail houses and hotels are the biggest beneficiaries of government’s decision to scrap debit card MDR till December 31.
As per Industry experts, lowering debit card MDR can aggressively hold back banks from rolling out point of sale (PoS) terminals. Also, it would bring a prefernce for debit card payment and many merchants may become reluctant to accept credit cards where MDR is around an average of 170 basis points.
The key issues at the meetings were the government’s urgency for digital and electronic money payment after demonetisation and hurdles for the same, such as poor consumer awareness and low-profit incentive.
ET quoted a source: At present there is too much confusion and too little user education. The government is in a hurry. Banks are requesting the government not to sacrifice commercial considerations; they are also asking for light know-your-customer formalities to compete with pure digital wallet companies which allow any vendor without a current account or business establishment to download apps to accept or pay digital money.