The Finance Ministry has asked public sector banks and regional rural banks to bring down cheque-based transactions by popularising electronic payments.

It has directed these banks to pare cheque-based transactions by at least 20 per cent in the current financial year in the top 20 per cent branches in terms of business volumes.

Further, banks’ board of directors have to set targets for shifting customer transactions to the electronic mode and monitor them on a quarterly basis.

The migration to electronic payments (e-payments) should happen through proactive customer education, including demonstrating the use of electronic payment channels, the Ministry said in a communication to banks.

Specifically, the Ministry has mentioned that small and medium enterprises should be encouraged to embrace e-payments.

Banks have already been advised to use only electronic transactions for all payments to and from customers/suppliers/staff; disbursement of loans and payment towards instalments and investments; and electronic clearing service advice instead of post-dated cheques.

The Ministry’s directive stems from the fact that despite banks making big investments towards developing electronic payments, the number of cheque transactions continue to be large, showing only a marginal decline of about four per cent in the last four years.

With the adoption of technology and promotion of e-payments, it is expected that the number of cheques will show a sharper decline than has happened in the recent past, said the Ministry.

It wants banks to encourage their customers to migrate to e-payments as studies showed that the cost of handling a cheque during its entire lifecycle — from printing till storage and destruction — is high, Rs 25-40 per cheque, depending on the size of the bank.

As per Reserve Bank of India data, in 2011-12, the number and value of cheque transactions were at 134 crore and Rs 98,94,000 crore, respectively. In the same period, the number and value of retail electronic transactions were at 1160 crore and Rs 22,07,533 crore, respectively.

While electronic transactions are witnessing a rapid increase, in value terms they account for only about 18 per cent of the total value of transactions.

Carrot and stick

To motivate bank employees, the Ministry said migration of transactions to the electronic platform should be one of the parameters for giving incentives to the staff at the branch/regional/zone office level.

Banks should monitor adoption of electronic payments and take action against officers, charged with the responsibility of ensuring this, warned the Ministry.

kram@thehindu.co.in

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