Govt to discuss MDR rate issue with RBI, says finance ministry official

New Delhi: The government will hold deliberations with the Reserve Bank of India (RBI) to work out a mechanism for bringing down merchant discount rates (MDR) which have increased from 0.25 percent of transaction value to 0.90 percent recently, a finance ministry official said.

According to a senior finance ministry official, the surge in charges would impact Digital India movement so there is need to look into the issue.

"Most merchants will be discouraged to use POS machines, especially small merchants who do not get input tax credit in GST. This will discourage them from using POS machines," the official said.

Swipe machine. Reuters.

Swipe machine. Reuters.

There are around 27-28 crore transactions that are held per month on the Point of Sale (POS) machines with an average size of Rs 1,500.

Last year after demonetisation, RBI as a special measure had capped the MDR at 0.25 percent of the transaction value for transaction up to Rs 1,000 and 0.5 percent for transactions above Rs 1,000 and up to Rs 2,000.

The new norms announced by RBI a week ago, puts the MDR charges at 0.40 percent if the transaction involves physical infrastructure such as a swipe machine for small merchants with turnover up to Rs 20 lakh during the previous financial year.

The MDR charges are capped at 0.90 percent for other merchants limited to Rs 1,000 per transaction.

The RBI on 6 December revised the MDR for debit card transactions at large format retail stores from 0.5 percent per transaction to 0.9 percent (not exceeding Rs 1,000).

The Retailers’ Association of India (RAI) has also raised this issue with the government and the regulator. They have demanded that the MDR charge should be kept at 0.40 percent and that the revised charges will increase the cost of merchants which they will have to pass on to consumers.

While the RBI said the rates have been rationalised to increase the acceptance of debit cards by a wider set of merchants, the increase and the high cap defeat the purpose as it almost doubles the cost borne by merchants, RAI said in a statement.

Updated Date: Dec 14, 2017 12:22 PM

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