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Last Updated Wednesday July 19 2017 05:49 PM IST

A cashless economy for cash-strapped citizens

Sachidananda Murthy
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A cashless economy for cash-strapped citizens A cashless economy for cash-strapped citizens (representative image)

In the relentless push for a cashless economy, public sector and private banks have decided to impose transaction costs on those who withdraw cash from their savings and current accounts in branches.

While private banks like HDFC and ICICI have put the fee for each cash transaction at Rs 150, the State Bank of India, the largest bank in the country, has put it at Rs 50.

The banks have also decided that there will be a fee for withdrawal from ATMs. In both cases, the first few transactions in a month will not be charged, but after three or five transactions, the fee will be levied.

Finance minister Arun Jaitley and Reserve Bank governor Urjit Patel, who are pushing hard to implement Narendra Modi's vision of minimizing cash transactions, are confident that most bank depositors will manage within the free transactions allowed in the branches and at ATMs.

The middle and lower classes, who have smaller amounts in their accounts, on an average, have had a maximum of three branch withdrawals and five ATM withdrawals, before demonetization of Rs 500 and Rs1,000 notes in November. The government feels there will be lesser number of transactions, though with higher cash amounts withdrawn, after the transaction fee is imposed from April.

Banks are also confident that individuals and companies, which operate with large sums, would not be pinched hard by the nominal transaction fee. Interestingly, the banks are also increasing the fee for issue of cheque books, in a bid to encourage online transactions. Thus, the cost of each cheque leaf would double.

Originally, the prime minister's office had proposed that every cash withdrawal, whether it is the first or fifth, should be charged with a transaction fee, so that the cost of hard cash transactions would be higher than online transactions.

The PMO had pointed out that the people had complied with the 60 odd instructions given by the Reserve Bank of India on cash withdrawal limits, both in terms of cash and period, and the customers would accept the new charges.

The prime minister has been thanking people, especially voters in poll bound states, for their role in implementing demonetization.

However, the finance ministry officials felt there would be a strong reaction, especially from the Internet-illiterate middle class and senior citizens, who solely depend on banks for all their financial transactions.

The demonetization experiment had also shown that lot of informal trading still took place with cash, as retail traders and consumers were not equipped to pay through telephone app based devices. APP payment portals like Paytm and Paypal had also imposed limits on transaction amount by retail and informal traders.

Though the government has claimed that more than three crore people have downloaded the Bhim app, introduced by the government, use of the smartphone based app has not yet become popular.

Hence, Jaitley said initially three to five transactions should be allowed free, to give elbow room for lower and middle class. But he has agreed that banks can charge a fee if people fail to keep minimum balance in their accounts.

But as Jan Dhan accounts have no requirement of minimum balance, the banks would not earn much from this provision for penalizing those who don’t keep the minimum balance.

The opposition parties have reacted with dismay to the imposition of transaction charges and the issue would be raised during the resumed budget session of parliament, which is due to start on March 9.

However, the prime minister is unlikely to retract on the decision to impose transaction fee on cash withdrawals beyond the permissible free attempts.  

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