Debit card payments
Starting from January 1, RTOs will accept digital payments. [Representational Image].Reuters File

The Reserve Bank of India's move to reduce transaction charges on debit cards till the end of March 2017 will not have any major impact on fee income of banks as higher volume of digital payments are likely to compensate for the reduction in charges.

According to a top official of Indian Banking Association (IBA), the move will help in pushing higher digital payments along with installation of more point of sales (PoS) terminals. He said any reduction in charges for pushing cashless transactions should take care of the cost concerns of service providers.

"RBI's move to reduce Merchant Discount Rate (MDR) for transactions up to Rs 2,000 will not have much impact on fee income of banks as higher volume will compensate for the cut in charges," the top official told International Business Times India on Saturday.

In a notification on Friday, RBI reduced MDR on debit card transactions till March next year. While for transactions up to Rs 1000, charges will be 0.25 percent of the value; it will be 0.5 percent for transactions between Rs 1,000 and Rs 2,000.

Earlier, banks had announced that there would be no charges for debit card payments till December 31, 2016. This has raised concerns among bankers, who said that this would make the whole payment services model unsustainable. Reports also suggested that banks would lose around Rs 1,000 crore of fee income owing to the decision to waive off fees on card transactions.

"Card transactions have increased by three times post demonetisation. So, higher transactions will push fee income of banks," the official said.

On the issue of demonetisation impacting normal banking operations, the official said things have improved a lot in recent days with banks conducting normal operations than only focusing on cash disbursement to customers.

"We see situation in cash crunch front easing by the end of this month. Currently, there is no free flow of currencies from customers to banks. As the system has certain level of cash, this will start happening and liquidity situation will improve," the official said.