Government asks banks to rejig fees to boost e-channels

MUMBAI: The government has written to the Indian Banks' Association (IBA), asking lenders to rework their charges for customers in a manner that incentivises digital transactions over cash transactions.

In a recent communication to the IBA, the finance ministry's department of financial services has said that banks should consider cross-subsidisation of low-value digital transactions by high-value digital transactions or cash transactions. "Banks should proactively promote digital transactions and take all necessary steps to make them cheaper for customers than cash transactions," the communication said.

Some bankers see the finance ministry's statement on cross-subsidising low-value digital payments with cash transactions to mean that banks should start imposing charges on some cash deals. "Banks may re-examine the current policy of allowing certain number of free cash transactions, while charging for every digital transaction," the circular said.

Through its department of financial services, the finance ministry has been pushing public sector banks to go digital. The directions to the IBA are seen as a move to get private banks on board. Although the government has the power to issue directions to the Reserve Bank of India to come out with guidelines, it has never in its history exercised this option.

Last year before demonetisation, a report on digital payments by Ashish Das, professor of statistics at IIT-Mumbai, had suggested that banks disincentivise cash to promote electronic payments. "Our recommendation was that banks should not charge for electronic fund transfers. If you charge, the customer will choose to withdraw cash and make the payment even though this is the more expensive option for the bank," said Das.

The government has set a target of 2,500 crore digital transactions per month by the end of the current fiscal. The target is only for retail transactions and includes payments through the Unified Payments Interface (UPI), Unstructured Supplementary Service Data (USSD) messages, Aadhaar Pay, Immediate Payment Service (IMPS) and cards.

According to Das, the government should promoting digital transactions through campaigns to achieve the target. "Hopefully, the burst in payments will come after October when banks integrate UPI with BharatQR from next month," said Das. BharatQR is a feature that will enable customers with the BHIM/UPI app to make payments by merely scanning a bar code in stores.

Last month, the ministry of electronics and information technology asked all banks to have a board-level digital payments committee to promote electronic transactions. In banking circles, it is widely expected that the government will announce fresh digital initiatives from October