The Reserve Bank of India on August 17 released a discussion paper seeking public opinion on various charges imposed by payment intermediaries in the country.
The discussion paper has sought ways in which the apex banking regulator can address the various issues that are required to reduce “friction” in India’s payments infrastructure and further promote digital payments.
“It was considered necessary to undertake a comprehensive review of the rules and procedures for levying charges in different payment systems in the country, with the objective of assessing their impact on the efficiency, growth and acceptance of payment systems,” the RBI discussion paper said.
Analysts have termed the paper as open-ended given that instead of the usual practice of making recommendations and then seeking public opinion, the central bank has asked comprehensive questions on various payment charges on which the public can respond with their opinion. Comments are sought until October 3.
“In our opinion, the paper is quite open-ended with RBI open to consider all approaches,” brokerage firm JM Financial Services said in a note.
An aspect of the discussion paper that will concern market participants is the segment on merchant discount rates (MDR) on credit cards that may have implications for the only listed credit card company in India – SBI Cards and Payment Services.
Credit card issuers charge an MDR on every transaction made by a card holder at a point of sale. The central bank has observed that such charges should reflect the going interest rates in the market for the tenor of the transaction. RBI also said many a time card issuers raise the MDR during periods of high interest rates but fail to reduce them in similar manner when interest rates are falling.
“RBI has not issued any regulatory mandate or intervened on MDR for credit card transactions. The main reason for this is the credit-linked nature of the product,” the discussion paper said.
With respect to MDR, the central bank has sought public opinion on regulating MDR charges, whether MDR charges are reasonable, and if the RBI should regulate interchange for credit card transactions instead of MDR.
Brokerage firm JM Financial believes that the suggested arguments put forth by the regulator could put downward pressure on existing merchant rates in India, “but the fact that no stringent caps on MDR have been discussed is a relief for companies like SBI Cards”.
Kotak Institutional Equities, however, feels differently.
“The key question from this paper is whether we need to have a serious re-look at our investment thesis on SBI Cards and Payments,” Kotak Equities said in a note.
Kotak Equities added that at this point, it does not believe its investment thesis on SBI Cards changes in lieu of the discussion paper despite the uncertainties of a few quarters, where it waits for the final guideline on MDR charges.
Investors, nonetheless, are nervous as reflected in the more than 4 percent cut in shares of SBI Cards to Rs 959.80 on the National Stock Exchange (NSE) today.
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