Money & Banking
RBI aims to develop more efficient, integrated payment system

According to the central bank, payment systems will be driven by customer demands of convenience ease of use and access and in innovative e-payment products and capabilities

Mumbai: The Reserve Bank of India (RBI) aims to develop a more efficient and integrated payment system in the country, reports PTI.
In its 'Payment Systems In India: Vision 2012-15' document, RBI said the main focus is to provide a modern electronic payments system that is safe, simple and low-cost for use by all.
"Payment systems will be driven by customer demands of convenience ease of use and innovative e-payment products and capabilities," the RBI document said.
The regulatory policy stance will be oriented towards promoting a less cash/less paper society, it said.
RBI said it is to be achieved by nurturing a payment system that adequately serves the national and international transaction needs of the country.
The payment system initiatives taken over 2009-2012 have resulted in deeper acceptance and penetration of modern electronic payment system, it said.
Though cheque is still a dominant mode of payment, its share has come down from 65% to 52% in volume terms from 12% to 9% in value terms.
Payments in non-cash payments have shown an upward trend with electronic payments by the end of 2011-12, constituting 91% in terms of value (from 88% in 2009-10) and 48% in terms of volume (from 35% in 2009-10).
"Notwithstanding these accomplishments, cash remains the predominant payment mode in the country...The value of banknotes and coins in circulation as a percentage of GDP (12.04%) is very high in the country when compared to other emerging markets, like Brazil, Mexico and Russia," RBI said.
Likewise, non-cash transactions per citizen is very low in India (six transactions per inhabitant) when compared with other emerging markets.
The electronic payment products and services is concentrated to a large extent in the tier-I and tier-II areas and mostly to people having access to formal banking channels.
However, the section of unbanked and under-banked population in the country have missed the bandwagon of modern electronic payments system.
"The use of electronic payment instruments allows the unbanked to start building a transaction history, which can be a step towards initiating them towards financial inclusion." 
The modern electronic payment systems will also meet the payment needs such as remittances under the overall ambit of financial inclusion, RBI added further.




5 years ago

The way the RBI is going for development of the electronic payment systems might actually kill the usage of such instruments by customers. Banks incentivize the debit cardholders for example to spend at POS instead of withdrawing money from ATM. But RBI has been promoting free ATM usage by customers. As someone said recently ATMs are like milk bottles for children. It is difficult to move kids away from milk bottles if the practice goes on for more than what is necessary.
Also, unlike a prepaid telephone SIM card where the value is one cant remain connected without the phone and the SIM, a prepaid bank card or a prepaid payment card has no such compulsions. People can still do transactions by using cash. So, they don't see the need to first put the money in a prepaid card and then go and use it to buy things. Even if they do, whe do such people use the cards. The taxation laws of the country has resulted in a grey economy as big as possibly the white economy or maybe bigger. So, merchants don't want to show revenues lest the various tax departments come hounding for their pound of flesh. While it is easy to manage the taxmen with some under the table money if all transactions are in black, they won't be able to do it if they record such transactions or accept payments in card or other electronic forms.

So, whatever RBI is trying to do will need to be done with full assistance of the government machine ties. Not only the finance ministry but other ministries also need to come on board and promote a culture where cash is not the only medium of exchange.

Here comes the RBI thinking of keeping costs low. In their zeal of reducing the costs of electronic payments acceptance, they are making it unprofitable for banks to promote such usage of electronic payments medium. If they don't earn money or save costs from a particular initiative , they won't promote it. Innovation happens when there is a possibility of making profits. In a scenario where RBI thinks payments is a social service it is unlikely to result in investments by note rested parties to innovate.

Another factor resulting in muted growth in non cash payments is the increasing practice of surcharging by merchants accepting cards. Instead of treating costs of accepting payments as a core cost and factoring it in the costs of doing business, they discourage customers from paying by non cash means by levying an additional surcharge. This is due to the faulty understanding that accepting cash comes with zero costs. The government departments are the biggest culprit. Try making a card payment for the passport fees - the passport offices make you pay using bank notes and even write the denomination you paid on a register and take your signature. What a relic it is !!

The government keeps 7 percent of the NREGA related planets as cost of effecting payments and monitoring, the government doesn't want to pay for accepting card payments. IRCTC blatantly charges almost 2 percent to people using their website to book tickets and who want to use the convenience of cards to make the payment. Why? Hasn't the railways saved crores in costs by not setting more ticket counters, by having cleaner premises and lesser clouds?

So, there are a number of things which need to be accomplished at the same time. Like they say stars need to be aligned to achieve the objective of a less cash economy.

Rs5.25 crore bank van heist: Robber, wife arrested from Uttar Pradesh

Last Friday, the gang of robbers waylaid the bank's cash van, pinned down its security guard and shot him after he tried to snatch their weapons

New Delhi: One of the robbers allegedly involved in the sensational Rs5.25 crore bank van heist in south Delhi and his wife were arrested from Uttar Pradesh, reports PTI quoting police.


Hari Kishan and his wife Rashmi were apprehended from Banda, a senior police official said. With this seven persons have been arrested in connection with the last Friday's robbery.


Some cash has been recovered from them, the official said.


The gang had waylaid the cash van, pinned down a security guard and shot him after he tried to snatch their weapons.


They fled the spot in the cash van leaving behind the car in which they were following the vehicle. The guard later succumbed to bullet wound.


It was a raid at Harkishen's house in Khirki that helped police in its trail. The key of the looted cash van was recovered in his house.


Harkishen is the second person, who was allegedly involved in the actual robbery, to be arrested. One Deepak Sharma, who was with Kishan and others, was arrested earlier.


Two youths, who were allegedly involved in the planning were also arrested besides two relatives of a suspected robber who helped them in hiding a portion of the money.


Investigators have found out that four youths were spotted by some locals in Khirki with big boxes on Friday. A portrait of one of the suspects was sketched with their help.


From their description, police managed to get photographs of two criminals, which the eye-witnesses confirmed as those they saw robbing the van.


Several teams covered Hauz Rani and Khirki, and verified recently evicted tenants besides checking other details with property dealers.


Police on last Saturday managed to identify the house which was believed to have been used by the suspects. It belonged to Hari Kishan who had shifted recently and purchased it in his wife's name.


Raids were conducted at this house and from there, police managed to recover the keys of the cash van, which was abandoned by the gang. Some other documents were also seized from the spot which indicated that the suspects had visited and stayed there, the official said.


Handling inflation for personal finance requires a “Personal Finance Inflation Index”

While financial planners have their own opinion on inflation, institutions involved in conducting financial planning courses in India have never thought of an inflation index, which shows that there is very limited innovation in financial planning in India

All financial planning advice has one thing in common and that is how to handle inflation while creating portfolio of assets. It starts with the idea that investments made by an individual must beat inflation, else effectiveness of financial planning is lost and there is no real wealth creation. The idea sounds great. But is it possible to implement it so easily? Is there a common and convenient answer to this question? Talk to financial planners on this issue and they will answer this question more with gut feeling rather than a scientific analysis.

Some of the most common answers given on the issue are, “your investment must beat CPI or food inflation”, “your investments should generate at least 8% return as we have considered 8% inflation” (Interestingly, source of 8% is not known). Some other planners say that for education, healthcare and energy-related expenses a higher rate of inflation needs to be considered. But the question still remains unanswered—which rate of inflation needs to be considered for personal financial planning.

For reading what Morgan Stanley has to say about India’s CPI, click here.

It is extremely important to handle inflation scientifically and not based on some arbitrary number as inflation has a potential to derail the entire financial planning process. After all, inflation does not impact everybody equally. It depends on the level of income and consumption pattern of an individual. For a person with lower level of income, food inflation matters more than anything else, while for a person drawing a handsome income, food inflation will not be the same cause of worry.  This will make an impact on the inflation planning approach of both the individuals. Similarly educational and rental expenses have increased phenomenally during last five years and unfortunately no inflation index captures this. So how we handle this strange scenario? The solution of the problem probably is in creation an inflation index which will be focused on personal finance.

What is most surprising is that while financial planners continue to have their own opinion on inflation, institutions which are busy in spreading certification courses (and probably minting money) on personal finance in India have never thought of working such ideas which shows that there is very limited innovation in financial planning in India. If the National Stock Exchange (NSE) can create a Volatility Index (VIX) for measuring volatility, why not have a separate index for inflation for personal finance.

How the personal finance index should look like?  The personal finance index should be made up of expenses that comprise day-to-day expenses of individuals. Like any index there should be weightage assigned to important expenses such as rental, food, healthcare, education, etc. The index can be one common gauge but can be used differently by every individual and will be based on expenses of an individual. Additionally, this expense need not be calculated weekly or monthly. Once in a quarter computations should be good enough. Since portfolio churning is not done frequently, frequency of index computation once in a quarter makes sense. The idea here is capture those expenses which impacts the expense pattern of individuals. Some of the expenses such as those on education, healthcare and recreation are not captured by traditional inflation indices like WPI and CPI.  This index will remove all such anomalies.

Who will create this indexIdeally the index should be created by institutions such as “Financial Planning Standard Board” but it seems such institutions have limited capabilities in this direction. The next entity could be the financial planner who helps you build your financial plan. Logically the financial planner should record price trends in the economy. This means that at the start of financial planning the index value should be created and be used periodically to check whether investments have been able to beat inflation or not. However, an individual can also create an index by tracking his own expenses and changes in it. This is not a cumbersome exercise and can be done by recording transactions and prices associated with transactions in a simple software like MS Excel. However, an individual’s index can at best be used by only limited individuals who show similar pattern in expenses.

It is unfair to leave financial planning exposed to vagaries of inflation. Beating inflation needs a deeper analysis of inflation and its impact on investments. A hit and trail approach cannot be the benchmark of financial planning.


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