Given low levels of internet penetration, the push away from cheques and towards electronic banking can only work with select high-end customers.

In its discussion paper, the Reserve Bank of India (the RBI) has made a passionate case for disincentivising the issuance and usage of cheques in India. Cheques indeed are problematic for everyone concerned — bankers, the clearing house provided by the RBI, the issuer who has to worry about the correctness of his signature and the receiver who has to take the trouble of visiting his bank to deposit them and then agonise over their honouring.

PREMATURE MOVE?

Some Scandinavian countries have rung the curtain on cheques already, with Internet banking and its adjunct electronic payment taking firm root. Britain has said that 2014 would see the last of cheques. The RBI seems to be in a tearing hurry to join these worthies — and some would go to the extent of saying that it has got its priorities wrong.

Some would argue that for a country such as India with a huge rural population, the country has jumped the gun by becoming a ‘service economy’ even before developing sound agrarian and manufacturing bases as necessary adjuncts.

Cynics see a similar trend in the RBI’s tearing hurry — seeking to free the country of cheques, even as banking penetration is hardly complete, with banks being conspicuous by their absence in large swathes of rural India.

But in all fairness to the RBI, it must be said that usage of cheques can be minimised by incentivising its non-usage and disincentivising its usage in places where they are in vogue.

WHERE IT CAN WORK

The RBI wonders, almost rhetorically, whether banks are scaring users of electronic modes away by levying charges for these, and goes on to suggest that the charges should be done away with in order to incentivise electronic usage.

It also suggests levy of charges for issuance of cheque books to disincentivise usage of cheques. But it could be going overboard with its suggestion that the payee of a cheque should also be made to bear the cost of collection, if only to disincentivise acceptance of cheques.

The charge of Rs 6 per payments up to Rs 1 lakh by National Electronic Funds Transfer (NEFT) is a clear case of penalising those who are doing a distinct service to the bankers — freeing them of the trouble of processing and clearing cheques. If withdrawers of cash from ATMs are viewed with grateful eyes, so should the users of electronic modes of payments.

The lead should be taken by government organisations and government undertakings in popularising Internet banking — paying their employees and suppliers by electronic credit alone. This would have a trickle-down effect, as it were. In due course, it could be made mandatory for listed companies and companies beyond a specified turnover to gravitate towards a mandatory electronic payment regime.

The RBI is indeed right in insisting on dividend and interest to shareholders and bond/deposit holders, respectively, being made only through direct credits to their bank accounts, at the pain of the latter having to bear charges for insisting on being paid physically through cheques.

As far as the hoi polloi are concerned, it is going to be a long haul. Their cynicism needs to be addressed. They are apt to make comparisons. An airhostess in the US from the dizzy heights of 35,000 ft, swipes a debit card and presto it works!

But in India often our broadband connections on the terra firma blink. The speed can be woeful. Safety in the physical is also something that cannot be banished. Cheques are tangible. Electronic payments, on the contrary, seem to simply vanish into the thin air.

It would take sometime for the awe to go away and reality to sink in. Meanwhile, the daily and transactions limit should be liberalised at the request of customers so that those wanting to use them for larger transactions and more frequently are not dissuaded.

State utilities such as electricity boards should give a discount to those who do not line up before their cash/cheque counters and instead pay electronically from the comfort of their homes.

The RBI proposal to bring back cash transactions tax is regressive even if it is to counter and check the possible drift towards cash in the wake of disincentives on cheques.

The banking cash transactions tax which was in vogue for hardly a year had to be withdrawn as it caused considerable harassment both to bankers and their customers.

The proposal to mandate credit card holders to pay the bank only electronically at the pain of penalty for making cheque payments might incidentally have an additional spin-off — people gravitating towards the thrifty debit cards from the spendthrift credit cards!

But the RBI seems to be tilting at the windmills when it frowns upon banks accepting post-dated cheques from borrowers towards EMIs.

TRICKLE-DOWN

It is not as if all borrowers are computer or Net savvy so that they can make electronic payment with unfailing regularity month after month. In the event, there is nothing objectionable in banks taking post-dated cheques out of abundant caution in their enlightened self-interest.

The drive to abolish cheques should be targeted at high-end bank customers, with those at the low end gradually following suit, perhaps with starry eyes. This is one trickle-down effect that cannot be decried as being condescending towards the common man.

(The author is a New Delhi-based chartered accountant.)

(This article was published on February 5, 2013)
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