SBI research report: Banks may suffer Rs 3,800-cr loss on rising PoS transactions post note ban

Loss due to OFF-US transactions stands at Rs 4,700 cr, while revenue gain from ON-US at only Rs 900 cr.

By: ENS Economic Bureau | Mumbai | Published: September 29, 2017 1:35 am
Modi government, digital money, cashless economy, gdp growth, inflation, GDP growth rate, interest rates, exchange rates, Note ban, demonetisation, demonetisation effect, banking sector, Indian banking sector, Indian banks, SBI, indian economy, business news The report has said the exorbitant rise in number of PoS terminals after demonetisation from merely 13.8 lakh in March 2016 to 28.4 lakh as of July 2017 has resulted in an increase in debit and credit card transactions at PoS.

The government’s digital push after the withdrawal of Rs 500 and Rs 1,000 notes is likely to cost the banking sector dearly. The sector, which is struggling with huge bad loans, may suffer an annual loss of around Rs 3,800 crore following the sharp rise in the number of point of sale (PoS) terminals after demonetisation, according to a report by SBI Research.

The report has said the exorbitant rise in number of PoS terminals after demonetisation from merely 13.8 lakh in March 2016 to 28.4 lakh as of July 2017 has resulted in an increase in debit and credit card transactions at PoS.

“We estimate that for OFF-US transactions, the aggregate annual loss for card transactions at PoS terminals around is Rs 4,700 crore. However, the net revenue gain per annum from ON-US transaction at PoS would be around Rs 900 crore,” the report said, adding that the net loss would be around Rs 3,800 crore. If the issuing bank and acquiring bank is the same, the transactions at PoS are termed as ON-US transactions. If the issuing bank and acquiring bank are different entities, it is known as OFF-US transactions.

State Bank of India chairman Arundhati Bhattacharya had earlier asked the government for compensation in some form to offset the losses the bank suffered due to demonetisation. “Our huge infrastructure that we need for keeping cash is very expensive. If we can take the impact the way some of that and put more people into value added transactions, to some extent it will help us. There’s a cost to this. The cost is something that will impact us immediately. That cost is something that the government needs to look at and then try and see what they can do to help us with it. There’s cost for the amount of business that we have lost during these days. We have not done our regular business. There’s a cost to the staff staying overtime. There’s cost to ATM recalibration. There’s a cost to security, transportation… all of these have costs. This is a cost that’s going to come to the bottom line. This is where the government can do a little handholding… That would be very much appreciated, Bhattacharya said in an interview to The Indian Express in December 2016.

“The sustainability of the card business depends on a number of factors like merchant discount rate, low card usage, poor telecom infrastructure, lack of incentives to merchants to accept cards, insufficient awareness about the costs associated with use of cash etc. As per the agreement with bank, the merchant should bear the cost of MDR but they are transferring the cost to the customer,” the SBI report said.

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