Page 52 - Banking Finance October 2022

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reimbursement of cost and maintenance charges. UPI is a means of payment in day-to-day retail transactions. Cash is
surrogate for cash and NPCI a proxy for the RBI. also essential for the inclusion of socially vulnerable citizens,
such as the elderly or lower-income groups.
As such, the UPI system does not require any
‘reimbursement’ even by the Government. Section 2(h) of Let us not forget that bank notes are the only form of money
the Foreign Exchange Management Act, 1999 too defines that people can keep without involving a third party. You
‘currency’ to include “all currency notes, postal notes, postal do not need access to equipment, the internet or electricity
orders, money orders, cheques, drafts, travellers’ cheques, to pay with cash.
letters of credit, bills of exchange and promissory notes,
credit cards or such other similar instruments as may be Ergo, when the central bank or its preferred agent nudges
notified by the Reserve Bank” . citizens to shift to electronic payment mechanisms, an
obligation arises on its part to make available the small value
NPCI was originally promoted by 10 banks from both the electronic payment service without any cost to the user.
public and private sectors and licensed as a PSO by the RBI
in 2008 as joint initiative of the RBI and the Indian Banks’ Printing, distribution costs
Association (IBA) to takeover certain functions from the
The RBI incurs substantial expenditure on printing and
Institute for Development and Research in Banking
distribution of currency notes. Costs under this head, which
Technology (IDRBT). Its mission is to touch “every Indian with
was Rs. 2,021 crore in 2006-07 had recorded a CAGR of 6
one or other payment services.”
per cent for a nine-year period reaching Rs. 3,421 crore in
2015-16. From 2017-18 through 2020-21, expenditure under
Note that by virtue of being the sole operator for its services,
this head has clocked a negative CAGR of 6.5 per cent,
licensed by the RBI, it has no competitor and has been
except for the year 2016-17 which was an outlier due to
bestowed with the monopoly to develop and operate retail
the re-monetisation efforts undertaken by the RBI.
payment systems.
This is supported by the data published by the RBI on printing
That the balance sheet of NPCI for FY 2011-12 says that “the
of currency notes. According to this data, currency notes in
payment and settlement functions of RBI was divested to
10 and 100 denomination have gone down in circulation
NPCI and any income generation is only incidental”, further
during the last five years. Similarly, shipments of fresh notes
corroborates this contention. NPCI acts like an extended arm
by the presses in denominations of 10, 20, 50 and 100 have
of the RBI so far as payment systems are concerned.
been recording secular contraction over the same period.
Under Section 22 of the RBI Act, 1934, the Bank has the
All these point to only one conclusion: cash payment is being
sole right to issue currency notes in India. The RBI has made
replaced by UPI and other digital means. UPI is the future
elaborate administrative arrangements for the discharge of
of cash. Of course, there is another instrument waiting in
the currency functions. The economy requires a certain
the wings to replace even the UPI and that is the Central
quantity of cash to function. Cash used to be the dominant
Bank Digital Currency, when issued.
Thus, the savings on account of reduced spend on printing
can partially, if not fully today, offset the cost borne by NPCI
on promoting UPI without any ‘reimbursement’ by the
Government.

UPI has revolutionised the way we carry, pay and settle peer-
to-merchant and peer-to-peer transactions of small value,
without having to handle currency notes. Today, UPI is going
places and evolving as a brand internationally. It needs to be
supported and perpetuated as a freebie before some other
oven-baked technology takes over. (Source: Business Line)

52 | 2022 | OCTOBER | BANKING FINANCE