With many of us engaged in an economic activity to earn a livelihood, we have bank accounts; and deposits and withdrawals are the core activities which we perform.
With many of us engaged in an economic activity to earn a livelihood, we have bank accounts; and deposits and withdrawals are the core activities which we perform. Today with technological innovation we have various avenues (such as ATMs, internet banking, mobile banking, phone banking) through which we can carry out our banking activity, but yet there are certain banking transactions such as cash deposits, cash withdrawals and cheque deposits, which we yet prefer doing physically by visiting our bank. But now it seems that the Reserve Bank of India (RBI) wants to preclude bank account holders to do such physical banking transactions.
Recently, the RBI floated a discussion paper on 'Disincentivising Issuance and Usage of Cheques' thereby seeking to discourage usage of cheques and cash withdrawal, by levying a charge on such transactions. “In order to avoid increased dependence or slippage to cash-based transactions, high (both in amount and frequency) cash withdrawals and deposits of cash by individuals may also be charged,” said the discussion paper.
The other major suggestions enunciated in the discussion paper include:
- Restriction on the number of cheque books (by keeping a minimum number on a per annum basis, and thereafter levying a charge – which could be moderate to steep, beyond the minimum number)
- Ban on post-dated cheques (PDCs) for fresh loans, with suitable conditions for late payments and non-payments which should be disclosed upfront
- Existing PDCs should be converted into electronic payment mandates
- For cheques issues beyond stipulated limit, charges may be levied at the time of payment/debit to the account by the paying bank when the cheque is presented for payment through clearing
- Discourage cheque collection boxes at public places
- Mandatory on-line payment of credit card bills
It is noteworthy that in order to encourage greater adoption of electronic mode of payment, the RBI has also mentioned that the Government departments and agencies should immediately stop levying “convenience charge” on customers who prefer to make payments using electronic means such as cards and online banking.
According to RBI, corporates and institutional customers are the largest users of cheques across all value bands (accounting for 54% - 64% of the cheques processed), and thus for them access to cheque books should be made costlier, no free cheques books should be issued to them and steep charge should be levied by all banks on cash deposits/withdrawals by current account holders into/from their accounts. It is also said that for payment of dividend through cheques, an additional charge should be levied.
We are of the view that, the aforesaid discussion paper, on which the RBI has invited comments from public by February 28, seeks to establish a "less-cash" society and encourage greater adoption of electronic mode(s) of payment. But we think that, it is vital for the central bank to recognize that there may be several small businesses (in nature of proprietorship and partnership concerns) or even older individuals who may be affected as they may not be very technologically savvy to perform their banking transaction via the electronic mode of payment or even pay their utility bills online. Such a proposal if goes through may also impede in the Government’s agenda of financial inclusion, since many aren’t very well-versed with electronic mode(s) of payment.
PersonalFN is a Mumbai based Financial Planning and Mutual Fund Research Firm