An RBI discussion paper issued earlier this month on charges in the payment system suggested that UPI payments might be subject to a tiered charge based on various amount brackets. The paper said, UPI as a fund transfer system is like IMPS and therefore, it could be argued that the charges in UPI need to be similar to charges in IMPS for fund transfer transactions.
However, the finance ministry on Sunday clarified that the Government of India won’t levy any charges on Unified Payments Interface (UPI) services. In a tweet, the Ministry said “UPI is a digital public good with immense convenience for the public and productivity gains for the economy. There is no consideration in Govt to levy any charges for UPI services. The concerns of the service providers for cost recovery have to be met through other means.”
In India, the RTGS and NEFT payment systems are owned and operated by RBI. Systems like IMPS, RuPay, UPI, etc, are owned and operated by the National Payments Corporation of India (NPCI).
While the Government’s position that a free UPI regime would turbocharge digital payments is totally validated (In July 2022, UPI reported 6.28 billion transactions amounting to ₹10.62 trillion, according to data released by the National Payments Corporation of India), the perception that service providers do not incur any cost of UPI payments is not true. While the cost is definitely lower than that of debit and credit cards, UPI is not quite free since NPCI charges a switching fee. Besides, there are also infrastructure and merchant acquisition costs involved. These costs are not funded by the RBI or the Government, but banks and fintechs split the costs amongst themselves at the moment. GIven the level of sophisticated infrastructure needed, these are actual costs that are incurred by the financial service ecosystem.
The RBI believes that for the system to be sustainable, it has to make money. However, for the time being it seems that the Government’s stance that UPI is a digital public good that can lead to productivity gains in the economy holds sway. Experts believe that it is just a matter of time before the regulator and the Government come up with a flexible model that can address both the woes of the industry participants and the Government’s aim to turbo charge digital payments. Till then, UPI and RuPay debit cards shall remain free of cost.
Bank credit show double digit growth in Q1 FY 2022-23
According to the Reserve Bank of India’s ‘Quarterly Statistics on Deposits and Credit of Scheduled Commercial Banks for June 2022’ released last week, bank credit growth accelerated to 14.2% in the quarter ended June 2022 from 6% in the same period of the previous year. In the quarter ended March 2022, bank credit had expanded by 10.8%.
Keeping with the rising momentum in economic activity, the bank credit expansion was broad-based, posting double-digit annual growth in June 2022 in metropolitan, urban, semi-urban and rural areas in the country.
Aggregate deposit growth (year-on-year) has remained in the range 9.5 – 10.2% during the last five quarters. Metropolitan branches continue to account for over half of the bank deposits and their share increased marginally over the last one year.
The share of current account and savings account (CASA) deposits in total deposits has been increasing over the last three years (42% in June 2020, 43.8% in June 2021 and 44.5% in June 2022).
As credit growth is outpacing deposit growth in the recent period, credit-deposit (C-D) ratio has been on the rise. In June 2022, C-D ratio stood at 73.5% at all-India level.
The RBI Quarterly Statistics report is based on data collected from all scheduled commercial banks (SCBs), which include regional rural banks (RRBs), small finance banks (SFBs) and payments banks (Pbs).
Banks are in discussion with the Reserve Bank to further strengthen the central know your customer (CKYC) format in order to avoid multiple accounts in the banking system with different KYC identification.
The issue is that it becomes difficult to trace multiple accounts of an individual if they are not linked and are opened with different KYC documents. At present, any one of the six documents-passport, Aadhaar, voter’s identity card, NREGA card, PAN card or driving licence-is required towards proof of identity and proof of address to open a bank account.
This plan will further strengthen the central KYC Record Registry, which can be accessed by entities operating under all four major regulators of the financial sector-RBI, market regulator Securities and Exchange Board of India, insurance regulator IRDAI and pension watchdog PFRDA.
The Insurance Regulatory and Development Authority of India (IRDAI) provided insurers with more flexibility in paying commission by linking limits to the overall portfolio and company management expenses.
The insurers have been told by Irdai that their commission and remuneration payout should be based on a board-approved policy which will be reviewed on a yearly basis. No commission shall be payable to insurance agents or the insurance intermediaries in the direct business, and the insurers must grant discounts on the premium.
The new regulations state that the commission limit will stay but, henceforth, it will be at the portfolio level limit and not an individual line of business. This means that a company that does more group health business at a low commission will have more headroom than a company with more individual health insurance businesses. Some insurers feel that even if limits are set at the portfolio level, regulations should not blend wholesale and retail portfolios for calculating commission ceiling.
