To encourage digital payments, the RBI announced that it would remove the charges it levies on banks for transactions through the RTGS and NEFT payment systems, which it operates. Until now, the central bank charged banks for transactions routed through RTGS and NEFT, and banks in turn passed on these charges to their customers. The RBI notification said that banks would be required to pass on the benefits of zero charges to their customers, and that instructions on this would be issued within a week. Real Time Gross Settle System, or RTGS, is used to transfer large amounts (minimum ₹2 lakh) between bank accounts instantaneously. National Electronic Funds Transfer (NEFT) System is used to transfer funds between two accounts at NEFT-enabled banks. There is no general upper limit, but individual banks may put an amount limit on NEFT transactions.
Enacting RBI’s vision for digital payments
Last month, the RBI had defined a vision for digital payments from 2019 to 2021 in which it had identified 12 specific outcomes, one of which was accelerated growth in electronic payment systems. Unified Payment Interfaces (UPI) are expected to grow, on an average annualised basis, over 100%, and NEFT at 40%, the report said. Removing the fees for NEFT and RTGS is a step towards achieving this growth.
RBI-appointed panel’s recommendations on NEFT and RTGS
A major issue with the NEFT is that it is neither instant, nor available 24×7. NEFT transactions occur in half-hour batches with 23 settlements between 8 am and 7 pm. Furthermore, the system is not available on public holidays and weekends, except the first, third and fifth Saturday of the month. RTGS, despite being instantaneous, is also not available to customers at all times. An RBI-appointed panel, set up to review the status of digital payments in January and headed by Nandan Nilekani, recommended in its report that the RBI must review the usage patterns of RTGS/NEFT on a quarterly basis and adjust the hours of operation so that users have options to make high value digital payments at any time.
Committee to review ATM charges
The RBI statement also said that it would set up a committee, with the CEO of Indian Banks’ Association as its chairperson, to examine the “entire gamut of ATM charges and fees”. The Committee will submit its recommendations within two months of its first meeting.
Growth of digital payments in India
Digital payments, especially via the Unified Payments Interface (UPI), have seen huge growth in the past few years. Between May 2018 and May 2019, the volume of UPI transactions increased from 189.5 million to 733.5 million, marking an almost 400% increase, while the amount transacted has shot up from ₹32,885.5 crore to ₹152,449.3 crore, a roughly 500% increase.
Between April 2019 and May 2019, the amount transacted increased by ₹10,414.9 crore, the number of transactions fell from 781.8 million to 733.5 million. However, the average amount per transaction grew to ₹2,078 in May 2019, up by almost 10% from April 2019.
You can read the RBI’s statement on Developmental and Regulatory Policies here.