Assorted credit and debit card machines sit at a payment counter at a Hindustan Petroleum Corp. gas station in New Delhi, India (Photographer: Prashanth Vishwanathan/Bloomberg)

Government To Bear MDR On Debit Card Payments Up To Rs 2,000 For Two Years

The government will bear the merchant discount rate charges on transactions up to Rs 2,000 made through debit cards, BHIM UPI or Aadhaar-enabled payment systems to promote digital transactions, IT Minister Ravi Shankar Prasad said today.

The MDR will be borne by the government for two years with effect from Jan. 1, 2018 by reimbursing the same to the banks. The move will have an impact of Rs 2,512 crore on the exchequer.

The decision was taken at the Cabinet meeting chaired by Prime Minister Narendra Modi, Prasad said.

“For all the transactions less than Rs 2,000 in value, the consumer and the merchant will not suffer any additional burden in the form of MDR,” the minister said, adding that since such transactions account for sizable percentage of transaction volume, the decision will help move towards a less-cash economy.

The government’s decision will help small businesses avail credit from banks easily, Shikha Sharma, managing director and chief executive officer of Axis Bank told reporters. “I think it's a very progressive move to push digitisation some more.”

When payment is made at a merchant point of sale, MDR is payable by the trader to the bank. Citing this, many people make cash payments despite having debit cards.

A committee comprising Secretary, Department of Financial Services, Secretary, Ministry of Electronics & IT, and the CEO, National Payment Corporation of India (NPCI), will look into the industry cost structure of such transactions which will form the basis to determine the levels of reimbursement, Prasad said.

MDR is charged on payments made to merchants through BHIM UPI platform and AePS (Aadhaar enabled Payment System).

Watch this interview with VG Kannan, chief of Indian Banks’ Association on the impact of the government’s decision.

(With inputs from PTI)