​The Reserve Bank of India (RBI) has questioned a government proposal to dramatically lower charges on debit card transactions for pushing the Digital India story in the aftermath of demonetisation. In multiple meetings and video-conferences held last week with the banking regulator and large lenders, a cabinet minister along with senior government functionaries have suggested that the merchant discount rate (MDR) – the rate charged to a merchant by a bank for providing card services – should be either done away with or substantially lowered till March 31, 2017. 

Indeed, large retail houses, hotels and other top merchants are the biggest beneficiaries of the government’s decision to scrap debit card MDR till December 31.Experts in payments business say that lowering debit card MDR aggressively may hold back banks from rolling out point of sale (PoS) terminals – electronic devices which are used by retailers to process card payments; also, a nominal or zero charge on debit cards could make many merchants reluctant to accept credit cards where the MDR is around an average of 170 basis points. 

Besides waiving off service charge on digital transactions till December 31, the government has announced extra discounts for card transactions in petrol pumps, toll booths railway ticket counters etc, and has directed the rural development bank Nabard to help banks install two PoS terminals across 1 lakh villages with a population of 10,000. Its ministers and top bureaucrats are now thinking what may be the next big announcement.