Jingo 11 months ago

Its a very arbitrary move by RBI, and in continuation with what we have seen with other regulators in the insurance and MF industry. The regulations in those industries resulted in sales going down. While there were malpractices in the distribution setup, the regulations banning entry load have essentially thrown the baby with the bath water. India needs more people to invest in capital markets for deepening the market and saving for their retirement. Now noone sells them MFs and they dont invest on their own because they are not yet financially savvy.
Similarly people dont use their debit cards in the normal course and have to be incentivised to use electronic medium of payment instead of cash. Also many a times merchants also discourage customers because of high taxation. They like to keep the sales in the black economy to save direct and indirect taxes which can be as high as 20-40 percent of profits.
Since RBI cannot control tax related measures, they are trying to push electronic payments by reducing the cost to merchant. But this is only going to benefit large merchants already accepting cards at the cost of customers. Banks would withdraw or scale down the incentives like reward points, cashback, and promotions to debit cardholders as that cost will now wipe out any income they were earning from the use od debit cards to purchase goods and services.
There would be many who will argue otherwise, but we will see the results and measure it against the deliverables RBI sets for itself.
It would have been better for RBI to mandate the merchants including government to accept payments by electronic modes an persuade government to provide some tax relief to them as an incentive.
The examples quoted by RBI of other countries which have enacted similar regulations are faulty as those economies are at a much more advanced stage of development as far as acceptance and usage of cards is concerned.
Also, majority of the cards issued in the coutry are by government owned banks while majority of the usage is by other banks because they have promoted usage by customers. It would have been better if RBI would have persuaded banks to promote such usage.
I must also say that the government doesnt seem serious at all in its efforts to take out cash from the economy. Why should the passport offices be accepting only cash as mode of payment, the cashiers even go to the extent of noting the bank note numbers (God or the home ministry only knows why they do it)!! Why cant citizens pay for services like getting certificates or college admission forms online using internet banking or cards?
I can go on and on about why the approach taken by RBI is faulty but it will probably not change anything in the short run as the RBI officers know that no banks will ever protest about such decisions as they have bigger stakes in hand. Many bankers are miffed at such insensitive decision making. Someone said its as if RBI is supposed to be thinking about the benefits of the merchant lobby rather than about banks!!
Also RBI thinks that payments as well as consumer banking is a social good. They fail to understand that if banks dont make enough money from consumer banking they will not focus on increasing penetration to smaller centers. As commercial entities, they cannot be forced to increase size without earning suitable returns for their shareholders. We have aeen socialism and communism fail in this country. With such high handed regulations in all sectors including telecom, capital markets and banking, we will ensure that een capitalism fails!! Result more than 60 percent population would continue to strugggle to make both ends meet!! We need some adroit leadership in this country!!