The Ministry of Finance, Government of India, has asked (pdf) all Public sector banks (PSB) to promote online payments and has directed them to make payments to their customers, vendors, and suppliers electronically instead of paying via cheques, starting 1st July.  The ministry intends to lower the cost for handling cheques.

The circular issued to Chairmen of all PSBs (Public Sector Banks) quotes a study which shows that the cost of handling cheque for the bank during its entire lifecycle, from printing till storage and destruction, is between Rs 25 to Rs 40 per cheque depending upon the size of the bank. The total cost of handling cheques by the Public Sector banks is estimated to be Rs. 4,000 -Rs. 8,000 crore. For the year 2011-12, data collected by the RBI reported that the number and value of cheque transactions was 134 crore and Rs. 98,94,000 crore respectively. During the same period the value of electronic transactions was just Rs. 22,07,500 crore.

The circular also mentions that since banks have heavily invested into technology as well as in developing various applications for electronic payment, they should make use of the technology available for reducing the cost for banks. For the same, the ministry of finance has asked all public sector banks to use only electronic transactions for all payments to and from customers/staff, All payments to vendors and suppliers, disbursement of loans and payments towards installments and investments and ECS advice instead of post dated cheques.

Reduce NEFT Charges

Apart from this, banks have been also advised to reduce charges for NEFT (National Electronic Funds Transfer) transactions to zero for value up to Rs. 1 lakh. The finance ministry claims that any perceived loss of revenue on account of NEFT transactions in such cases would be more than made up by much higher savings on the cost of cheques or ATM transactions, and that electronic transaction will imply significant savings to the banks.

The Board of Directors of the banks have been advised to set the target for the shifting of transactions to electronic medium, and monitor the progress on at least a quarterly basis informing the progress to the Government Of India, Finance department.