The Budget proposal for a zero merchant discount rate (MDR) has not gone down well with banks. Many have questioned why they should bear the cost of it and not the merchants – this comes in the wake of payment companies expressing their reservation to this proposal earlier.
“We are taking up the issue with the regulator. The question is why should merchants be allowed to go free? Most merchants are ready to give a 10 per cent cashback to the customer, but are unwilling to pay 1 per cent MDR,” said an executive with a private sector bank.
Budget 2019-20 had announced that no MDR would be imposed on customers and merchants.
“The Reserve Bank of India and banks will absorb these costs from the savings that will accrue to them on account of handling less cash,” Finance Minister Nirmala Sitharaman had said as part of a slew of measures to further encourage digital payments.
The proposal has already caused angst among payments companies, who have sent representations to the Finance Ministry and the RBI through the Payments Council of India, pointing out that it will hurt the industry and that banks will choose not to deploy such infrastructure to avoid incurring costs.
Sources however, said that the discussion on MDR is only limited to private banks at present, as most public sector banks are still awaiting a notification from the ministry and the RBI on the issue to get more clarity.
“Only the proposal has been announced. Most public sector bankers are waiting for the final notification to understand the full issue,” said a person familiar with the development.
The Indian Banks’ Association is yet to take a decision on how to proceed on the issue, as it is still unclear on the proposed modalities.