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20
tb
February 2013


Bi B v Subbaiao
uoveinoi
Reseive Bank of Inuia
Numbai.

Sub: Plans to 'Bisincentivise' usage anu issuance of cheques neeu to be sciappeu immeuiately

Beai Bi Subba Rao

I am wiiting on behalf of 2u,Suu+ membeis of Noneylife Founuation, a not-foi-piofit oiganisation
iepiesenting Inuia's laigest gioup of saveis. All oui membeis will be affecteu by the punitive pioposals
containeu in the uiscussion papei on 'Bisincentivising 0sage anu Issuance of Cheques' to move towaius
a "less cash" system that was ieleaseu foi public uiscussion on S1
st
}anuaiy 2u1S.

Sii, we woulu like to submit that any move to 'encouiage' the use of inteinet-banking oi cash-less-
cheque less tiansactions will be welcomeu by Noneylife Founuation's membeiship. Bowevei, we
stiongly anu unequivocally oppose any move to cuitail the use of cheques thiough the levy of punitive
chaiges as pioposeu in the above-mentioneu iepoit.

uiven the low penetiation of Inteinet usage, oi e-liteiacy even among otheiwise liteiate peisons anu the
haiuship that it woulu cause to senioi citizens, the entiie iepoit, in oui opinion is piematuie, ill
conceiveu, impiactical anu hugely uetiimental to the inteiests of consumeis anu must be iejecteu
foithwith in its entiiety.

Woise, the chaiges, which aie meant to act as a 'uisincentive' leau to unueseiveu eniichment of banks at
the cost of theii customeis, with the sanction of the RBI. We hope that this cannot be the intention of the
RBI, whose manuate is to woik foi the benefit of all stakeholueis.

Please allow us to spell out oui conceins in uetail. But befoie we uo that, we woulu like to question the
claim that the iecommenuations of the iepoit aie 'baseu on inputs ieceiveu uuiing consultations with
stakeholueis'. We finu that the stanuaiu piactice of pioviuing uetails of those whose views weie sought
has not been followeu anu can only concluue that RBI's uiscussions weie limiteu to banks anu not the
useis of banking seivices.





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In fact, the papei itself agiees that steps to encouiage electionic tiansactions, incluuing the elimination
of chaiges on these tiansactions must fiist be iemoveu, befoie moving to uisincentives. Fuithei,
goveinment uepaitments such as the Income Tax uepaitment uo not fully unueistanu electionic
payment systems anu many membeis of pailiament uo not even iecognise teims such as NEFT oi RTuS.


Uur comments on tbe discussion paper:

Punitive cbarges will only create a fligbt to more casb usage in India: Bespite automation anu
moueinisation of banking systems, the piesence of a laige paiallel economy, political pationage anu
othei systemic issues, Inuia still uses too much cash. In most uevelopeu countiies, the piopoition of cash
tiansactions to the uBP is just 1%, but in Inuia, it is S%. Inuians, baiiing the uiban segment between the
ages of 2S anu SS yeais, aie aveise to moving away fiom cash. This is eviuent fiom the inability of the
RBI to get the 12u million new customeis in un-bankeu aieas to use theii bank accounts even once (as
mentioneu by Bi K C Chakiabaity). Finance ministei P Chiuambaiam iecently acknowleugeu that "too
many questions" ielating to Know Youi Customei (KYC) noims anu "too many iegulations" weie
fiightening investois away. This is tiue of banks as well. 0pening a bank account now takes weeks anu
peisons in tiansfeiable jobs suffei enuless haiassment anu aie often foiceu to use cash. The feai that
people may simply ieveit to cash tiansactions is also acknowleugeu in the uiscussion papei (paiagiaph
one in 'Avoiu slippages to cash tiansactions' on page 14), wheie it notes that its plan "gives iise to the
ieal woiiy that if cheque usage is actively uiscouiageu, it woulu have a negative impact by ie-uiiecting
these payments to cash-moue". In this situation, peisons who use cashless moues of payment, such as
cheques, cieuit anu uebit caius oi electionic payments systems must be positively encouiageu. We aie a
long way fiom a situation wheie we can push people into using electionic tiansfeis by imposing
punitive chaiges.

Low level of accessibility: A significant poition of Inuia's population has little access oi exposuie to
computeis anu smaitphones. 0nly 1u% of the Inuian population uses the Inteinet, as compaieu to 8u%
of the 0S population; iuial anu semi-uiban Inuia uoes not even have 24x7 electiicity, let along the ability
to access e-payment systems. In 'Reasons foi cheque usage' (Paia 2, pg 4), the uiscussion papei itself
says, "low levels of accessibility anu awaieness of electionic payment systems hampei auoption of e-
payment systems". Bow then is it pioposal of imposing cost anu chaiges on all Inuians who use cheques
justifieu. Isn't it sheei haiassment.

Scrapped in tbe UK: 0nuei intense ciiticism fiom the public, chaiities anu Nembeis of Pailiament
(NPs) the 0niteu Kinguom was foiceu to ieject a pioposal by its Payment Council to switch completely
to e-payment by 2u18. A key ieason foi sciapping the iuea was that it hau faileu to consiuei the effect on
those who iemain less at ease with technology, incluuing the elueily anu the infiim. In Inuia, this
pioblem is significantly woise. 0ui liteiacy iate is low, we have 22 official languages, uespite the fact
that banks tenu to opeiate only in English, pei capita income is tiny as compaieu to the 0K anu we have
a laigei pioblem of having to get hunuieus of million unbankeu people to use even basic banking
seivices. To cuitail the usage of cheques, especially when financial inclusion seems so essential, woulu
only uiive them away fiom the banking system.





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Crievance redress system needs fixing: Befoie uemanuing a manuatoiy switch to e-payment systems
theie is an uigent neeu to cieate a iobust, time-bounu giievance ieuiess system to ueal with
technology-baseu issues. This uoes not exist touay. Banks themselves aie stiuggling to cope with
phishing anu vishing anu the piocess to ueteimine system failuies oi ueal with e-theft is vague anu
iuuimentaiy. This is cleai fiom seveial iecent inciuents. In the miuule of Becembei 2u12, scoies of
cieuit caiu useis founu theii accounts uebiteu in tiansactions that took place oveiseas. It was only in
Febiuaiy that a Tbe Times of lnJio iepoit ievealeu that this was pait of a seiious global fiauu oiiginating
in Inuia involving cloning of caius. The victims spent at least two months iunning heltei-skeltei foi a
solution. In anothei case, an account in a Numbai bank was hackeu anu Rs1 cioie tiansfeiieu to 12
accounts. In both cases, uepositois who lost money aie clueless about what to uo. Nany banks uiu not
even follow the piactice of iestoiing the cieuit penuing inquiiy anu investigation. Appaiently, theie was
a bieach in the ieal-time gioss settlement (RTuS) payment system. The uiscussion papei uoes piopose a
ieuiessal system ('Bispute iesolution anu complaints ieuiessal', Page 1S), but it meiely touches upon
the neeu foi papei ieceipts anu confiimatoiy messages. A stiongei system that actually gives consumeis
a solution must be put in place uigently -- in fact, even befoie encouiaging gieatei usage of electionic
funu tiansfeis.

Incentivise e-payment: The Bamouaian Committee on Customei Seivices in Banks was a high-
poweieu bouy set up by the RBI. The iepoit (B6 - Noving Towaius Papeiless Funu Tiansfeis) states the
following: 'Customeis may be encouiageu anu given incentives to ieuuce cheque-baseu tiansfeis anu
migiate to othei channels of funu tiansfeis like national electionic funu tiansfei (NEFT), RTuS, ECS
(uebit¡cieuit), Inteinet banking anu mobile banking.' We believe that a numbei of initiatives can be
unueitaken to encouiage customeis to make the switch to papeiless tiansfeis.

BSNL anu NTNL, foi example, the two leauing public sectoi telecom companies, have, foi the last seveial
yeais, given a 1% uiscount to those who pay theii telephone bills thiough ECS. Public sectoi banks coulu
similaily play a pio-active iole in peisuauing utility companies banking with them to offei a uiscount if
the bills aie collecteu thiough the ECS system. The RBI coulu encouiage banks to offei tangible
incentives to customeis foi using e-payment systems. This coulu be in the foim of cash-back on uebit
caius oi thiough iewaiu points. If the banks can conveit theii customeis fiom cheque useis to useis of
e-payment systems, they benefit fiom lowei staff cost, lessei cost of stationeiy anu cheque leaves anu
fewei fiauus in cheque usage.

We aie suipiiseu that this suggestion has been ignoieu anu anothei committee set up to line up punitive
uisincentives such as cuitailing oi stopping the issue of fiee cheque books, iestiicting cheque uiop
boxes to bank bianches, levying 'heavy convenience chaiges' foi paying cieuit caiu uues by cash oi
cheque, piesciibing an uppei limit on cheque issuance by inuiviuuals, stipulating chaiges on highei
uenomination cheques, imposing a piocessing chaige on uiviuenu anu inteiest ieceiveu by cheque, anu
slapping a chaige on cash ueposits anu withuiawals thiough ATNs. We aie suipiiseu that the RBI has
set up this committee to 'uisincentivise' cheque usage when the Bamouaian Committee is so cleai an
unequivocal in its views. We also finu it stiange that theie is no mention of the Bamouaian Committee's
views, although it was set up as a high powei gioup on customei issues aftei a long inteiiegnum.





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Education of consumers: In oui humble opinion the RBI neeus to stait a piocess of engagement anu
uiscussion with consumeis of financial seivices oi theii iepiesentative gioups in oiuei to unueistanu
issues faceu by them, such as quality of infiastiuctuie foi electionic tiansactions acioss the countiy anu
level of comfoit with using ATNs, uiiect uebit of equateu monthly instalments (ENIs), ECS as well as
cieuit anu uebit caius. Awaieness about these systems is seveiely lacking. It is also woith a mention that
NEFT anu RTuS systems ensuie instant tiansfei of funus, but has not ieuuceu papei-woik to effect the
tiansfei. This too neeus to be examineu to unueistanu ieal cost implications. The single ongoing
initiative, e-banking awaieness anu tiaining (e-BAAT) is haiuly wiuespieau enough to euucate all
account holueis. The uiscussion papei itself says that the pioposals shoulu be 'pieceueu by conuuct of
stiuctuieu ieseaich anu conceiteu effoits at customei euucation' (|hj in 'Inuiviuuals as cheque useis' on
Page 18). Yet, shockingly enough, the iepoit suggests that some of the pioposals coulu be implementeu
by Apiil 2u1S ('Setting of Taigets foi Implementation' on Page 1S). This seems contiauictoiy anu
suggests inauequate unueistanuing of issues involveu.


Accurate customer records The uiscussion papei makes no mention of the neeu to maintain accuiate
customei iecoius when electionic tiansactions aie useu. Honeylife´s investigation into cieuit buieaus
showeu that even laige piivate anu foieign banks using the best technology have not botheieu to clean
anu stanuaiuise customei infoimation acioss theii piouuct anu seivice offeiings. We also believe that
the situation with nationaliseu anu coopeiative banks is much woise. All the Cieuit Infoimation
Companies (CICs) will attest to this finuing. In oui opinion, until accuiate customei iecoius aie
available, the push towaiu e-payment can only leau to a shaip inciease in consumei complaints anu
neeuless haiassment of hapless entities.

Restricts small traders: 0f all the segments, the pioposal to cuitail the usage of cheques woulu peihaps
affect small businessmen anu tiaueis the most. These businessmen caiiy out theii businesses
successfully by using cheque leaves as secuiity foi taking ueliveiy of goous anu¡oi selling theii piouucts
on cieuit. Noieovei, cheque leaves come hanuy foi iunning theii business uuiing weekenus oi
piolongeu bank holiuays, as they can take ueliveiy of goous by tenueiing cheques, which keeps the
supply siue of essential goous iunning foi the benefit of common people who uepenu on tiaueis foi
theii uaily neeus. Any iestiiction on usage of cheques will, theiefoie, be not only uetiimental to theii
inteiest, but a gieat blow to theii livelihoou as well. We believe that it is not in the inteiest of a majoiity
of oui people to cieate such aitificial baiiieis in the smooth iunning of theii business anu tiaue.

uiven all of the above, we believe that the iepoit on cieating uisincentives neeus to be sciappeu
immeuiately anu a new committee must be set up to figuie out ways of incentivising the usage of e-
payment systems. This gioup must compiise all stakeholueis such as companies anu seivice pioviueis,
consumeis anu expeits in online tiansactions anu sales. We have attacheu a spiinkling of ieactions to
oui aiticles on the RBI iepoit, in oiuei to pioviue you with a flavoui of public opinion with iegaiu to this
misguiueu iepoit.

0ui views may appeai stiongly woiueu, but aie in fact a toneu uown veision of the outiage expiesseu
by many bank uepositois. You woulu notice that Bi Piakash Beibalkai, ex- NB of Tata 0nisys uoes not
use e-tiansfeis. Noneylife Founuation will be happy to pioviue any fuithei infoimation oi coopeiation
iequiieu by the RBI to cieate bettei systems that allow safety anu ease of usage of banking seivices.


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Comments from our membersJreaders

1. Kamal Baid I have hau an account in the name of K S Baiu & Sons (B0F) in 0nion Bank of Inuia,
Piincess Stieet Bianch, Numbai 4uu-uu2, foi the past 2u yeais. I have alieauy applieu foi net
banking anu ieceiveu the passwoiu. The bank uebiteu Rs2Su foi pioviuing me with this facility,
only to latei tell me that B0Fs aie eligible foi net banking foi tax payment only. I have alieauy
sent so many letteis to 0nion Bank but I have not ieceiveu any ieply fiom them.

2. Ra|aram Bo||itri {former CMD Konkan Railway Corporation] This is not auvisable. Even
euucateu people in Byueiabau uo not have Inteinet access oi even a computei at home. They
live theii lives going physically to bill payment centies anu issue cheques foi eveiything.

S. Arun Cogte Boes the goveinment think that all bank customeis aie so liteiate that they can
hanule NEFT¡RTuS anu net banking. Think of the common man who is not even familiai with
the ATN pin¡passwoiu anu so on. The numbei of such customeis is laige. It's absuiu that the
goveinment is asking them to use net banking. Will the common man be consiueieu. Why this
hi-fi nonsense.

4. Steven D'souza 0ui systems aie stiuggling to extenu existing banking to all, oui banks neeu
thiee months moie just to shift to safei cheque cleaiing system. I have 21 yeais expeiience in
civil seivice, incluuing finance anu ievenue; this expeiience tells me that we neeu uecaues to
even stieamline the existing system, foiget the pipeuieam of an online banking system useu by
just S% of oui population touay. If wishes weie hoises, some uayuieameis at RBI woulu iiue.

S. Davesb Bansal Come uown to the giounu. Ask planneis to visit the ieal Inuia foi at least six
months by public tianspoit anu then ueciue.

6. Amalara| Marian Madam Noneylife always biings to light the ieal issues that aie ailing the
financial sectoi touay. A louu anu cleai message to all iegulatois must be "Siis, only 2u-Su% of
Inuia is liteiate in a ieal sense. The next 2u-Su% can baiely manage to ieau anu wiite to caiiy on
theii uaily activities. The iemainuei aie pooi souls who aien't lookeu aftei by anyone. Each
iegulatoi is looking aftei theii cionies anu ensuiing that theii political bosses benefit. This is the
ieason foi the ciazy iueas we aie seeing iolleu out eveiy uay.

7. Dr Prakasb Hebalkar While electionic tiansfeis aie goou foi bulk payment anu foi bill
payment to payees iegisteieu unuei a sepaiate secuie piocess, inuiviuual tiansfeis aie fiaught
with iisk. Theie aie numeious stoiies in the piess about unauthoiiseu tiansfeis anu uuplicate
tiansfeis owing to softwaie glitches. This has happeneu to me twice anu I hau tiouble getting my
money iefunueu. So I stoppeu using e-tiansfeis.

8. Babubbai Vagbela {Sr IT consultant] It is absuiu that the RBI is so keen on such a move,
paiticulaily when Bi Nanmohan Singh is ueau against using NEFT in making payment foi RTI
applications. The RBI, with this move, is uoing nothing but victimising the cioies of alieauy
haiasseu citizens anu giving benefits to banks.

9. Mani Ram Sbarma The iuea of the RBI is giounuless in the Inuian context, as theie aie only
1u% Inteinet useis in Inuia, while 8u% of 0S citizens have access to the Inteinet.

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1u. Moban Siroya - Consumer Activist: Nost of the Inuian Neuia has kept a stoic silence on the
aibitiaiiness of the oiuei to sciap cheques. The news that a uevelopeu countiy like the 0K hau
sciappeu the iuea is completely hiuuen fiom us. I have saiu umpteen times that the RBI is a
toothless, pio-bank anu pio-buieauciacy iegulatoi. Peihaps this is how the goveinment piefeis
it. RBI has become even weiiuei, uelibeiately ignoiing the Inuian iealities. Abolishing oi levying
unnecessaiy chaiges on use of cheques will spell uoom foi all anu haiass senioi citizens anu the
lowei stiata. When seniois neeu to uiaw cash fiom an ATN, they ask theii fiienus to help out. Bo
you think they will be able to manage with e-tiansactions. Let the goveinment fiist ensuie its
people aie able to use this system oi pioviue computeis to all.


Nany thanks foi youi kinu attention. A line of acknowleugement fiom youi office woulu be
appieciateu. A soft copy of the iepoit is also being emaileu to chequeusageÇibi.oig.in as mentioneu
in the piess note issueu by RBI.


Youis tiuly,


Sucheta Balal, Bebashis Basu
Tiustee Noneylife Founuation Tiustee, Noneylife Founuation