wordpress blog stats
Connect with us

Hi, what are you looking for?

Here are the implications on the RBI notification on MDR for govt transactions

There is some confusion for the government’s drive for increasing card transactions. The Reserve Bank of India (RBI) has instructed banks not to deduct MDR charges from government receipts and that they should remit the full amount paid to the government by card customers to the concerned government and ministry. MDR is an interbank fee levied on merchants for facilitating a card transaction.

The RBI also clarified that it is not absorbing the MDR of credit card transactions and the MDR on debit transactions above Rs 1 lakh.

On February 2017, while trying to boost card payments, the government of India decided to absorb MDR on debit card transactions while making payments to the government. Banks were needed to forward their claims for reimbursement on a quarterly basis. The claims are supposed to be signed by the bank’s officer in charge of government banking the officer was supposed to ensure that only debit card transactions up to Rs 1 lakh could be claimed.

What this means

Focus on debit cards: With this notification, the government and the RBI have made it abundantly clear that it wants to focus on pushing debit card transactions AND not credit card transactions. Credit cards attract a higher MDR – around 2.5-1.7% of the transaction amount. So it’s natural that the government would not want to absorb the MDR for these transactions.

Focus on granular transactions: Debit cards transactions above Rs 2,000 will attract an MDR of 0.75% of the transaction amount. The RBI has placed a transaction limit of Rs 1 lakh for reimbursement claims, which means the MDR on a transaction of Rs 1 lakh will attract an MDR of Rs 750. This gives an indication that the RBI is looking at subsidizing granular payments made to the government entities.

Advertisement. Scroll to continue reading.

So banks have to take note of government companies such as IRCTC. In November 2016, IRCTC claimed that it processes over 180 million transactions on its platform now. In April 2015, IRCTC users booked 13.45 lakh e-tickets on a single day. The total number of debit card transactions will allow banks to claim a significant reimbursement from the RBI.

– Security: The RBI notification probably points to the fact that banks are not ensuring there are enough checks on debit cards. It makes you wonder who would use a debit card to swipe for a transaction worth Rs 1 lakh and how did the bank allow the same to happen without additional authentication other than the PIN or OTP.

MDR guidelines review

The RBI has still not released final guidelines on MDR for debit and credit cards. A proposal is looking at a flat fee structure for government transactions below Rs 2,000 and a charge of 0.5% for transactions above Rs 2000 with cap of Rs 250 per transaction. More on that here.

You May Also Like


Incorrect Border Gateway Protocol (BGP) announcements by Vodafone India’s network had ripple effects on the global internet over the weekend, with many networks facing...

MediaNama is the premier source of information and analysis on Technology Policy in India. More about MediaNama, and contact information, here.

© 2008-2021 Mixed Bag Media Pvt. Ltd. Developed By PixelVJ

Subscribe to our daily newsletter
Your email address:*
Please enter all required fields Click to hide
Correct invalid entries Click to hide

© 2008-2021 Mixed Bag Media Pvt. Ltd. Developed By PixelVJ