Money & Banking
Incentivise usage of electronic payment systems before dis-incentivising usage of cheques

In a country like ours, where a large part of our population is outside the ambit of banking with no access to basic banking facilities, it is unwise and undesirable to restrict the usage of banking facilities and impose upon them banking technology which is yet to penetrate into the minds and hearts of the people

A discussion paper on “Dis-incentivising Issuance and Usage of Cheques” (available for comments up to 28 February 2013), put up by the Reserve Bank of India (RBI) on its website, is a classic example of putting the cart before the horse. Because there are problems galore in the electronic payment system, and even before stabilising this, the RBI wants to dispense with the cheque system. If the same objective of reducing usage of cheques can be achieved by incentivising the usage of electronic payments, why not try this positive method, which has more acceptability and receptivity, instead of going in a negative way for achieving the same results?


The present discussion paper appears to be a purely in-house exercise of the RBI, done without any appreciation of the ground realities and the psyche of the people affected by it. It is complete negative thinking and devoid of any consideration for the financially, technically, virtually and literally less-literate people of our country who happen to be in large numbers. Hence if the proposal contained in the discussion paper, is implemented, it will only result in going back to the days of cash transactions, as people will prefer settlement through cash instead of suffering under the half-baked and mal-implemented technology in our banking system and the poor service extended by banks in the name of automation. It is to avert this situation, the following suggestions are made and hopefully the RBI will reconsider its proposal and take a positive view in the interest of a large majority of banking public affected by this proposal.


Before dis-incentivising the usage of cheques, let us take the following important steps to create an environment of bringing down usage of cheques slowly through the change in the attitude of users of cheques.


RBI’s revised directive on bulk deposits does not help the large number of bank depositors


1. Perfect the present electronic payment systems

The most important thing is to make all electronic payment systems fool-proof and acceptable to all payers and receivers who should be satisfied with the 100% safety of the system and acceptability in settlements of all dues without any question at a future date. Unfortunately, banks are not giving enough importance to these aspects, resulting in the consumer not developing enough confidence in the system to rely upon in case of need. Therefore, the imperative need is to perfect the present electronic payment systems, which require a lot of improvement both in their form and content. The account numbers in all the banks are to be standardised, the multiple systems’ code used in all these payment transactions are to be harmonised into a single code for all payments, including international remittances. NEFT requires to be merged with RTGS to make the former too a real time payment system and to ensure its simplicity and robustness.


In the good old days of manual banking you used to receive a handwritten credit advice for every credit or debit affected in your account. With the advent of electronic banking, such credit and debit advices are lost in the jungle of computers. You now get an entry in your pass book with a reference number of the transaction, which does not make any sense to the account holder. Earlier, reading the advice was a problem due to the illegible hand writing, today you do not even get any information about the purpose of debit or credit entry. Recently, when a senior citizen went to his bank and got his pass book written up, he found a credit entry for which there was no explanation. When he asked for the name of the remitter, the clerk did not provide any information saying that it was not available on his computer. Only when he raised his voice, the branch manager came out and helped him with all the details, culled out from the same computer. This is the level of service you get from the computerised bank branches today. The RBI should first ensure that full details of remittance are furnished—without asking—to the remitter and the beneficiary for all electronic receipts and payments made through banking channels, as these details are vital for all businesses and individuals for tax purposes.


The technology used by different banks for different channels of payment are so wide and varied that it is virtually impossible for a layman to be abreast with so many changes taking place so fast. Today electronic payment is provided through multiple channels like internet banking, core banking, ECS, mobile banking, ATMs, and through the counters of branches but each bank follows a different method of operations. Hence, there is a need to standardise these systems in all banks, so that banking public can use them with ease. There is a further need to ensure that all the applications, advices, etc are standardised in all the banks to make it simpler for the common man to follow them without much confusion.


2. Make all electronic payment channels free of all charges

There are several electronic payment channels today and for every channel there are different charges levied by different banks according to their own fancy, without any regard to the cost of operations. Under core banking you can bank with any branch of a bank as all branches are interconnected through computers. But many banks do levy a charge if you deposit a cheque or cash at any branch other than the home branch. In order to encourage more and more people to go for electronic payment channels, as a first step, the RBI should direct that all remittances made using all types of electronic payments either online or through the counters of the branches of banks, must be free of all charges, in order to change the psychology of people by making available these services without any costto the users.


3. Incentivise all types of electronic payment systems

If you see the chart No.2 displayed below culled out from the RBI discussion paper, it is obvious that in terms of volume, the use of paper payment system (blue shaded) has remained almost stagnant for the last five years, though the additional volume has been coming from the electronic payment system. This is because the chronic semi-literate banking public continue to follow the old system of payment through cheques and therefore the immediate task of banks is to convert these core users to the new system by offering them all types of incentives and goodies outlined here, instead of forcing them into electronic systems much against their free will.


  1. The best way of incentivising the usage of electronic clearing system (ECS) is by giving a discount on payment of bills through ECS, which has been very successfully introduced by BSNL and MTNL, the two leading public sector telecom companies for the last several years. The system of giving 1% discount to all those who pay the telephone bills of these two companies through ECS has been the best  example of eco-friendliness much before the RBI woke up, thereby saving on cost of operations and in the process helping them to improve their cash flow by better debt collection. This worthy example should be replicated in all the utility companies both in the public and private sector, thereby giving a boost to the electronic payment system that RBI wants to propagate now. Public sector banks can play a very pro-active role in persuading all utility companies like power; water, etc, banking with them by giving them a bait of reduction in interest rate if their bills are collected through the ECS system which benefits both the bank and its customers.                                    
  1. The RBI should not only allow but actively encourage banks to offer tangible incentives for all users of the electronic payment systems through all available channels. And this incentive can either be by cash-back as offered by some banks on debit cards, or through a reward system of points offered by some banks on credit cards, leaving it to the imagination of banks to sew up their own preferred mode of incentives, thus attracting the customers to use these payment channels in the place of cheques. If  the banks are able to convert their customers from cheque users to electronic payment systems they will benefit from lower staff cost, lesser cost of stationery and cheque leaves, and  less of frauds in cheque usage, thus saving in cost of operations, and a part of this saving can be used to provide different type of incentives mentioned above.
  1. The RBI should lay down stringent guidelines for payment of compensation to the customers, whose remittances have been delayed, not credited, or bounced for no fault of theirs. This can be on the lines of compensation presently paid for the delay in reimbursing the amount debited but not dispensed by ATMs due to the fault of the machines as decided by RBI.
  1. Life Insurance Corporation of India and other private insurers should also be asked by the insurance regulator, IRDA (Insurance Regulatory and Development Authority) to implement payment of insurance premiums through ECS by allowing a discount, as a large number of people still pay the premiums either in cash or through cheques, as is evident from the long queues seen outside the LIC offices on most days.
  1. Public sector banks often hold celebrations like “Savings Month”, “Deposit Month”, and “Home Loan Festival”, etc, but no celebrations appear to have been held by any bank in the country to popularise electronic payments. The RBI should advice the banks to announce special periods for popularising electronic payment systems, when they could give some goodies, within the limits prescribed by the central bank, to customers who avail electronic remittance services. This will not only go a long way to educate customers on all electronic payment services, but will also help the banks in reducing cost of operations in course of time by automatically reducing usage of cheques. 

Do not rock the boat of livelihood of small traders and businessmen

A little known fact of life is that many small businessmen, petty traders, micro and mini industrialists do their business successfully by using cheque leaves as security for taking delivery of goods and or selling their products on credit, thereby earning their livelihood with integrity and honesty all over the country. Moreover, cheque leaves come handy for running their business during weekends or prolonged bank holidays, as they can take delivery of goods by tendering cheques, which keeps the supply side of essential goods running for the benefit of common people who depend on petty traders for their daily needs. And any restriction on usage of cheques will, therefore, be not only detrimental to their interest, but a great blow to their livelihood as well. It is therefore, not in the interest of a large majority of our people to create artificial barriers in the smooth running of their business and trade, by making it difficult to use the facility of cheques, which have gained credibility after the amendment to the Negotiable Instruments Act, making bouncing of cheques a criminal offence.


In a country like ours, where a large part of our population is outside the ambit of banking with no access to basic banking facilities due to illiteracy, lack of banking facility, sparse penetration of broadband technology in the countryside and very limited financial literacy, it is unwise and undesirable to restrict the usage of banking facilities presently enjoyed by the people and impose upon them banking technology which is yet to penetrate into the minds and hearts of our people. Let all our banks concentrate and dedicate themselves to the cause of financial inclusion and spread banking through education, motivation and persuasion following a path of least resistance to make access to banking facility to our billion plus people a reality at least by the end of this decade.


Let not irrational exuberance of a few technically knowledgeable people play havoc with the large majority of our countrymen and women, who need empathy as well as sympathy in carrying on with their day-to-day life with understanding and peace of mind. Let us, therefore, give the discussion paper a decent burial at least for the time being and think of what positive steps can be taken to prepare our people for a slow but sure technological change, though it may take a little longer time to achieve the objective which has given birth to this idea of new age banking.


Other stories by Gurpur.

(The author is a banking professional and he writes for Moneylife under the pen-name ‘Gupur’.)




4 years ago

The idea of doing away with "cheque" system is a Tughlakhi idea, which can never and will never work under present conditions. People are habitually used to receiving and paying money by cheques, so that any change, NOW, should be ruled out. If put into practice presently as suggested, it will only result in Chaos.

The pass book entries for all debits and credits must be fully SELF EXPLANATORY. It should not make the customers (incl senior citizens) to run to Banks for clarification or details.


Ubaldo C DSouza

In Reply to hasmukh 4 years ago

The second para of your post is very relevant. Banks give the narrative of debit and credit entries in their own gibberish code and sometimes even the bank staff is unable to explain. One has to wait for clarificationss which they ask for from some other higher or obscure source. HDFCn is the biggest incorrigible defaulter on this account since as long as I have had my account with them. On the other hand a smaller bank like Citizen Credit and Credit Bank has lucid and clear narratives.

arun adalja

4 years ago

idea is good but not practicle as internet exposure is limited to cities only and it costs some money and to take a print of receipt another issue as everybody does not have printing facility.even banks are not providing enough information on passbook for credit and debit.first rbi must ask banks to improve the system before doing anything.

Ubaldo C DSouza

4 years ago

What is the benefit (read incentive) to reduce the crowd at the bank counters, lessen paper (read cheque for one) usage and ddother transactions by working online, reduce customer interaction who bank staff sometimes sees as pests, etc. etc.? There are no brownie points!

Vaibhav Dhoka

4 years ago

No doubt that internet exposure has increased many fold in recent years,but ground reality remains that ours is extensively spread country people spread widely economically and literacy wise.What our regulators think is always from URBAN population.All regulators take umbrage of Go Green initiative to minimize its responsibility and accountability towards public at large.In fact electronic usage is used to levy hefty charges by programming and when one lodge a complaint Blame is put on Computer.

Amit Bhargava

4 years ago

The idea is to increase transaction charges for the customer. While issuing of cheques upto a limit are free, Electronic transfer of funds brings in revenue to the banks.

The issue was raised with Mr. Anand Sinha, Deputy Governor, RBI, vide my letter dated 4 Nov 2011, through item no. 2(b) of the letter.

Subject: Concentrated effort to Exclude Retail customers by Banks, by way of hiking the minimum balance / charges in the Saving Bank a/c - An alarming situation

Dear Mr. Sinha,

It has come to my notice, through my own experience with HSBC, and thereafter probing other banks such as Citibank, that banks have massively hiked the minimum amounts to be maintained / or required to open a basic Savings Bank A/c in an effort to exclude small customers.

While the minimum amount required to to have a savings bank account with Citibank now stands at a whopping INR 3,00,000 (Three Lacs), it is INR 75,000 with HSBC. Please refer to the table exhibited as “Annexure A”.

Therefore it implies that an Aam Aadmi (common man) getting paid INR 8,500 per month (INR 1,02,000 annually) by his employer by cheque, cannot encash it as he/she is not eligible for a No Frills Account (credits exceed INR 1 lac in a year), and is also in no position to afford a savings bank a/c. A small customer is thus deprived of a bank account by some banks today, and others may follow suit tomorrow. This selective exclusion cannot be allowed to happen.

The Reserve Bank of India is therefore requested to intervene and end this malpractice of the banks immediately, and abolish the requirement of minimum balances required for the following reasons, or abolish the limit on deposits in the no frills account.

1. Banks charge a huge commission on every service they provide on basic savings account. They even charge for closure of the account to cover costs. Therefore, the requirement of minimum balance is unjustified.

2. Banks use non maintenance of minimum monthly average balance (MAB), earlier quarterly (QAB), as an excuse to charge higher service charges and fleece customers, in addition to massive penalties levied.

The bank not only makes money on the deposits but also on service. Some glaring examples which also need correction are given below.

a. When a bank issues a draft, it charges a fixed percentage of commission on the whole amount. Whereas, the resources involved to issue a draft of any amount remains the same (where counting of cash is not involved), this fee should remain the same. Principles of money lending cannot be allowed to be applied on issuance of an instrument for which money has been collected or debited in advance. A small fee can be applied when counting of cash is involved.

b. Issuance of cheque, on which the bank spends on printing and processing attracts NO CHARGE, but an online NEFT/RTGS transaction executed by the customer on his time and resources over the internet / or at the branch attracts a charge. Because NEFT / RTGS transaction involves less involvement of the bank’s resources, these charges should be abolished and limits lifted.

c. Charges for online banking be abolished because it saves the banks a lot of resources when a customer opts for online banking. Instead of incentivizing the customers, banks have been found to be levying charges for opting of online banking services.

d. Non Home Branch Banking charges, a new phenomenon, needs to abolished simply for the reason that the Bank remains the same and all transactions are recorded electronically.

I hope you would use your good offices in plugin the loopholes in the banking policy of which the banks are taking advantage of.

best regards

Amit Bhargava

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At least 20 CIA prisoners still missing

In 2009, ProPublica identified more than thirty prisoners once held by the CIA who weren't accounted for. Since then, a few have resurfaced and many remain missing

In one of President Barack Obama first acts in the White House, he ordered the closure of the CIA’s so-called “black-site” prisons, where terror suspects had been held and, sometimes, tortured.  The CIA says it is “out of the detention business,” as John Brennan, Obama’s pick to head the agency, recently put it.

But the CIA’s prisons left some unfinished business.  In 2009, ProPublica’s Dafna Linzer listed more than thirty people who had been held in CIA prisons and were still missing.

Some of those prisoners have since resurfaced, but at least twenty are still unaccounted for.

Last week the Open Society Foundations’ Justice Initiative released a report pulling together the most current information available on the fates of the prisoners. A few emerged from foreign prisons after the turmoil of the Arab Spring. One has died. (The report relied exclusively on media accounts and information previously gathered by human rights groups. The Open Society Foundations also donate to ProPublica.)

The report counts 136 prisoners who were either held in a CIA black site or subject to so-called extraordinary rendition, in which detainees were secretly shipped to other countries for interrogation.

Many of the prisoners were tortured, either under the CIA’s “enhanced interrogation techniques” program or by other countries after their transfer. The report also lists 54 countries that assisted in some way with detention and rendition. The U.S. has not disclosed the countries it worked with, and few have acknowledged their participation.

The CIA declined our request to comment.

Here are the fates of a few of the prisoners we listed as missing back in 2009:

  1. Ayoub al-Libi, also known as Mustafa Jawda al-Mahdi, is a Libyan who was allegedly interrogated and detained by US personnel in Pakistan and Afghanistan in 2004. The next year he was returned to Libya, where he was sentenced to death as member of LIFG, an Islamist anti-Gaddafi group (designated a terrorist organization by the U.S.) He was released when uprisings began against Gaddafi in February 2011. Human Rights Watch interviewed him in 2012.
  2. Hassan Rabai, also known as Mohamed Ahmad Mohamed Al Shoroieya, is a Libyan who was captured in Pakistan in 2003 and later transferred to Afghanistan – where he alleges that he was waterboarded by U.S. personnel. Bush administration officials have repeatedly said that only three terror suspects were ever subjected to waterboarding; Rabai would be the fourth.  He was eventually transferred to prison in Libya, where he remained until February 2011. Human Rights Watch interviewed himlast year.
  3. Khaled al-Sharif, also known as Abu Hazam, was picked up with fellow Libyan and LIFG member Hassan Rabai and also held in Afghanistan. He remained in Libyan prison until March 2010, according to interviews he gave to Human Rights Watch.
  4. Mohammed Omar Abdel-Rahman is an Egyptian who was captured in Pakistan in 2003 and  considered a “senior Al-Qaeda operative.” He was transferred to prison in Egypt and was released in late 2010. He gave an interview in 2011 in which he admitted to running training camps in Afghanistan prior to 2001 but saying he had renounced violence.
  5. Mustafa Setmariam Nasar, also known as Abu Musab al-Suri, was tied to the bombings in Madrid and London in 2004 and 2005. Picked up by the CIA in 2005, he was transferred to prison in his native Syria. According to Syrian media, he was released by Syrian president Bashar Al-Assad in February 2012.
  6. Ali Abdul-Hamid al-Fakhiri, also known as Ibn al-Sheikh al-Libi, was a Libyan detained shortly after the 9/11 attacks. He was reportedly held in CIA as well as Egyptian custody over the next several years. According to a Senate Intelligence Committee report, he provided information about links between Iraq’s supposed weapons of mass destruction and Al Qaeda – information he later said he had fabricated. He was transferred to Libyan prison in 2005 or 2006, and was found dead in his cell in May 2009.

The whereabouts (and in some cases identities) of many more remain unknown or uncertain.

In 2007, then-CIA director Michael Hayden said that “fewer than 100 people had been detained at CIA’s facilities.” But only 16 have been officially identified by the U.S. government. President George W. Bush acknowledged the CIA’s detention program in September 2006 and announced the transfer of 14 “high-value” detainees to Guantanamo Bay prison. Two other high-value detainees were subsequently acknowledged.


Much else about the CIA program is still unknown. President Barack Obama closed the black-site prisons on entering office, but preserved the ability to render and to hold people for the “short-term.”

Obama banned torture, but announced that no one would be prosecuted for previously sanctioned harsh interrogations. A Justice Department investigation into deaths of detainees in CIA custody ended without charges.


The Senate Intelligence Committee recently completed a 6,000-page report on the CIA’s detention program. At Brenan’s confirmation hearings, Senator Jay Rockefeller (D-W.V.), said the report shows the interrogation program was run by people “ignorant of the topic, executed by personnel without relevant experience, managed incompetently by senior officials who did not pay attention to detail, and corrupted by personnel with pecuniary conflicts of interest.” Rockefeller is one of the few to have read the report, which remains classified.




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