MDR apprehension unlikely to spur higher cash usage: RBI DG

Concerns that introducing a Merchant Discount Rate (MDR) would spur a surge in cash transactions are unlikely to materialise, RBI Deputy Governor Shirish Chandra Murmu said on Friday, adding that it was only an “initial apprehension”.

From October 15, a 0.4 per cent MDR will apply to person-to-merchant UPI payments above Rs 2,000. The charge will be paid by merchants, not consumers, and will be capped at Rs 300 for transactions of Rs 75,000 or more.

Payments between individuals, as well as the vast majority of everyday merchant payments, will remain free. “I don’t think that apprehension will come true. It will be just initial apprehension,” Murmu said while addressing a financial market conclave hosted here by BCC&I on whether more cash would be used because of MDR. “Because it is a major shift in terms of how basically you are recovering the cost. So, that’s why it may be apprehension only. I don’t think this will have any impact, unlike some voices about whether cash will go up because of this MDR.”

On the apparent paradox of rising digital transactions and cash in circulation, Murmu said there was no paradox as cash serves both as a means of transaction and a store of value.

“This cash paradox, actually, that is not my work. That is the way media has read it, and analysis has read it. Because it points towards data,” he said.

“But I can tell you, if you look at it closely, it’s no paradox.”

“We are looking at cash in circulation, particularly notes in circulation. How it is getting impacted as digital currency is taking up,” he added.

Murmu pointed out that the expectation that cash in circulation should correspondingly decline as digital transactions increase was not borne out by the data because two things were happening simultaneously.

On the RBI’s recent regulatory changes, Murmu said the central bank had issued more than 600 draft and final amendment circulars in the last one year.

“We have, in fact, if you count, you take a simple count of the number of draft circulars we have issued, and the final amendment circulars, in the last one year it will be more than 600,” he said.

However, Murmu said, the number should not be seen as a measure of the regulatory burden on individual entities, as the RBI had reorganised its regulations across different categories of regulated entities.

“So, don’t get intimidated by the number. Because what we have done, we have reclassified all our regulated entities into some 11 categories. So, some of the circulars are basically a multiple of 11,” he said.

He said the exercise was aimed at reducing the compliance burden for regulated entities.

“So, from a regulated entity point of view, we are reducing their burden, and that burden we have shifted towards us,” Murmu said.

On the RBI’s shift towards principle-based regulation, Murmu said it was not a complete move away from rule-based regulation.

“See, when we say we are basically moving towards as much as possible principle-based, but you cannot give up your rule-based also. See, it’s a balance,” he said.

On the increasing use of artificial intelligence by banks and financial institutions, Murmu said accountability would continue to rest with boards even if machines replaced or supplemented human decision-making.

“At the end of the point what I was making in my speech was that irrespective of whether machines replace humans or supplement them, the accountability will rest with boards,” he said.

He said boards would have to educate themselves as financial institutions increasingly moved from human intelligence to machine intelligence.