Mumbai: Even as transactions under Unified Payments Interface race towards the billion-a-day goal, a potential conflict brews between norms that require UPI to be free and RBI rules that allow banks to limit the number of withdrawals in a savings account. This conflict can be overcome if the RBI takes over the costs of UPI payments just as it absorbs cost-of-currency transactions, according to a report.
The report by IIT-Bombay’s Ashish Das says that some banks have limited the number of debits in savings accounts. For instance, Indian Overseas Bank allows its savings account holders 50 free debit transactions in six months. Any withdrawal beyond this limit is charged at Rs 5 per transaction. Canara Bank allows four free debits in its basic savings account. Beyond that, there is a charge of Rs 5 per transaction.
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Banks typically limit the number of transactions to keep costs down. While the RBI has remained quiet on limiting transactions, it had indicated that banks could cap the number of withdrawals in a savings account. “On one hand, there is a regulation that advocates restrictions to the number of withdrawals, while on the other hand, the RBI, through their financial inclusion strategy, has a vision of usage of financial services and to take the country towards a cashless society through digital means. The two policies counteract each other,” the report said.
The report comes at a time when the central bank has sought feedback on payment charges. The government, meanwhile, is firm that UPI should continue to remain free. Privately fintech companies and banks have said that someone has to bear the cost of UPI transactions, at least for merchant payments.
“The government and RBI have been bearing significant costs on printing and management of currency. Over the past few years, they have spent, on average, Rs 5,400 crore annually on printing and even more on currency management. The expenditure towards UPI may be much lower and could even curtail the expenditure on cash,” said Das.
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According to Das, given that UPI has turned out to be the best alternative for cash for offline peer-to-merchant transactions, the government should formulate a more robust means for continued support for UPI transactions and bear the costs until the RBI can take over. “Just like the law has entrusted onto the RBI the responsibility of running the currency based payment system, at some point, the responsibility of UPI alongside currency management needs to be vested onto the RBI. Like RBI provisions for the cost of currency in their books of account, it should also provide for bearing the cost associated with managing the UPI infrastructure,” the report said.
