Link­ing MDR to Turnover Gets Tricky

Peg­ging sales vol­umes to mer­chants’ fee may not be all that fea­si­ble as it is very dif­fi­cult for RBI to de­ter­mine the turnover of small busi­nesses in In­dia

The Economic Times - - Finance & Commodities -

Mum­bai: Chal­lenges in de­ter­min­ing the turnover of small busi­nesses will likely im­pede the cen­tral bank’s plan to link mer­chants’ fee on dig­i­tal pur­chases with their sales vol­umes, putting in ques­tion the i ncreased adop­tion of plas­tic money in con­sumer trans­ac­tions that had hith­erto re­lied largely on cash. The Re­serve Bank of In­dia has pro­posed that the ex­tra charge, pop­u­larly called mer­chant dis­count rate (MDR), would be in kil­ter with the seller’s turnover. It has sug­gested a 0.4% charge on trans­ac­tions for mer­chants below ₹ 20 lakh in an­nual turnover, and 0.95% for those above ₹ 20 lakh. It has also sug­gested a ten-ba­sis-point dis- count for trans­ac­tions via QR Codes and other smart­phone based dig­i­tal trans­ac­tions.

“The­biggestques­tion­ishowdo we clas­sify mer­chants when in most cases their ac­tual num­bers are hid­den from as­sess­ment of bank of­fi­cials: They are mostly re­luc­tant­tosharethe cor­rect in­for­ma­tion withus,”saidHar­jeet Toor, head, cards, re­tail and MSME loans atRBLBank. The push to­ward dig­i­tal trans­ac­tions gained cur­rency af­ter In­dia overnight with­drew 500- and 1,000-r upee bills from­cir­cu­la­tiononNovem­ber8, seek­ing to si­mul­ta­ne­ously re­duce the size of a par­al­lel econ­omy and to pre­vent coun­ter­feit­ing. While sec­tions in the gov­ern­ment be­lieve charges on dig­i­tal pay­ments were a dis­in­cen­tive for peo­ple to shift to dig­i­tal­trans­ac­tions­from­cash,bankers say most mer­chants tend to use cash to re­main anony­mous and pre­vent big­ger in­ci­dence of in­come tax.

A re­port re­leased by global in­vest­ment bank­ing firm Jef­feries said the cat­e­gori­sa­tion of mer­chants com­pli­cates things for banks with de­cid­ing of MDR be­com­ing even more dif­fi­cult in case of mer­chants pro­vid­ing a bunch of ser­vices and prod­ucts un­der dif­fer­ent cat­e­gories.

“We­have­foundthat­mer­chants keep mul­ti­ple ac­count books, one for banks as their char­tered ac­coun­tants tell them to do: The other is where they cal­cu­late their ac­tual earn­ings,” said a se­nior banker with a Mum­baibased pri­vate bank.

“De­cid­ing how much to lend to them is any­way a big chal­lenge for us, and the same will be the case when we have to de­cide their MDR.”

The State Bank of In­dia has de­cided to levy the mer­chant rates on the ba­sis of the dec­la­ra­tion given by the mer­chants on their an­nual turnover.

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