UPI MDR unlikely to push users towards cash: RBI Deputy Governor

New Delhi: Concerns that the introduction of a Merchant Discount Rate (MDR) on certain UPI transactions could push payments back towards cash are unlikely to materialise, RBI Deputy Governor Shirish Chandra Murmu said on Friday.

From October 15, an MDR of 0.4 percent will apply to person-to-merchant UPI transactions above Rs 2,000. The charge will be borne by merchants rather than consumers and will be capped at Rs 300 for transactions of Rs 75,000 and above.

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Person-to-person UPI transfers and merchant transactions of up to Rs 2,000 will remain free.

Addressing a financial markets conclave organised by BCC&I, Murmu dismissed concerns that the new MDR structure could lead to increased use of cash.

“I don't think that apprehension will come true. It will be just initial apprehension,” he said.

Murmu said the concerns were understandable given the change in the mechanism for recovering costs in the digital payments ecosystem, but he did not expect the MDR to materially increase cash usage.

No ‘cash paradox’ despite digital payments growth

On the simultaneous growth of digital transactions and cash in circulation, Murmu said the trend should not necessarily be viewed as a paradox.

Cash, he said, serves not only as a means of payment but also as a store of value. Therefore, an increase in digital payments does not automatically translate into a corresponding decline in currency in circulation.

“If you look at it closely, it's no paradox,” Murmu said, adding that different factors were operating simultaneously.

RBI issued over 600 regulatory circulars

Murmu also said the RBI had issued more than 600 draft and final amendment circulars over the past year as part of its regulatory restructuring exercise.

He, however, cautioned against interpreting the number as an indication of a sharp increase in the compliance burden on financial institutions.

The RBI has reorganised regulated entities into around 11 categories, meaning some regulatory changes result in multiple circulars covering different classes of institutions.

“So, don't get intimidated by the number,” Murmu said.

He said the restructuring was intended to make compliance easier for regulated entities, with the RBI taking on more of the burden of organising and consolidating regulations.

On the central bank's move towards principle-based regulation, Murmu said the approach would not mean abandoning rule-based regulation altogether.

“It’s a balance,” he said, indicating that both approaches would continue depending on regulatory requirements.

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Boards remain accountable for AI decisions

Murmu also flagged governance responsibilities as banks and financial institutions increasingly deploy artificial intelligence.

Regardless of whether machines replace certain human functions or supplement human decision-making, ultimate accountability will remain with the boards of financial institutions, he said.

“Irrespective of whether machines replace humans or supplement them, the accountability will rest with boards,” Murmu said.

Boards would therefore need to strengthen their understanding of emerging technologies as financial institutions increasingly move from human intelligence towards machine-assisted decision-making, he added.

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