The decision on the MDR issue, which created much drama on Sunday night following its rollback by the banks, was taken at least two weeks back and was explicitly communicated to the state-owned oil marketing companies by way of three missives from the State Bank of India reiterating the government’s stand in a circular dated December 8, 2016.
However, on January 8, when banks intimated petrol pump owners to levy merchant discount rate (MDR) of up to 1 per cent on debit and credit card transactions, it forced them to announce that they will not accept credit/debit cards beginning Sunday midnight. Even, the ED retail of BPCL, on Sunday, termed it as a unilateral implementation of MDR by banks at a short notice.
The first communication by SBI to officials of Indian Oil, BPCL and HPCL, sent on December 22, reveals that the decision to levy MDR was taken in a meeting between banks and senior officials of OMCs.
“A meeting under the chairmanship of George Paul, executive director, was held and it was decided that fuel surcharge would be replaced by a normal business model where MDR is paid by the merchants,” the December 22 email from SBI CGM Ravi Prakash to George Paul, ED BPCL; D Sharma of IOCL and DNK Murthy of HPCL, read. The mail sent on behalf of the acquiring banks that include HDFC Bank, ICICI Bank and Axis Bank further said: “We understand that government has also since taken a policy decision to discontinue any kind of surcharge or fee to customers by any government department or entity, on use of cards or digital methods of payment, a notification has been issued that government departments / entities would bear the cost of MDR themselves.”
Prakash in his first mail also referred to the RBI notification relating to MDR rates for use of debit cards (0.25 to 1 per cent) and 1 per cent on use of credit card for payments and went on to say: “It is proposed to implement these standard Merchant Discount Rate uniformally at retail outlets of Oil Marketing Companies wef January 1, 2017”.
In the mail, he had also stated that the banks will communicate the rates to the retail outlet dealers ‘very shortly’.
The mail was followed by another mail on December 27 by the same SBI official, reminding the OMCs about the December 22 email and discussions held on December 23rd “in presence of Hon’ble Minister”. It said: “Since no direction has yet been received from the Ministry of Finance, we trust it will be in order to proceed as proposed”.
Again on January 1, 2017, the SBI official wrote to the three OMC officials and said: “Since we haven’t heard from you, trust the proposed arrangement has your concurrence,” said Prakash in his email. An email query sent to Indian OIL, BPCL and HPCL on Monday did not elicit any response.
While the OMCs do not seem to have responded to the emails sent to OMCs between December 22, 2016 and January 1, 2017, on Sunday, the retail fuel operators announced that they will not accept debit and credit cards payments beginning January 9, 2016, after the banks intimated them about their decision to levy MDR of up to 1 per cent on credit card and debit card transactions beginning Sunday midnight.
Responding to the banks’ circular to levy MDR, KP Murali, president of Tamil Nadu Petroleum Dealers Association said, “Our margins are fixed on a per KL basis and do not have any scope to absorb these charges…. We have requested various authorities and oil marketing companies to intervene and rectify the situation. We will not be able to withstand the financial loss generated by these transactions and have decided to stop accepting credit/debit cards from January 9, 2017.”
The OMCs too came out in defence. In a communication to the heads of SBI and HDFC Bank, the ED Retail of BPCL said: “We have received a circular sent by HDFC Bank to PSU petroleum dealers stating that MDR will charged on fuel transaction effective January 9, 2017. The matter was discussed with PSU OMCs and OMC is of the view that MDR was not levied on petroleum dealers for transaction via credit and debit cards, so far. The unilateral implementation of MDR by banks with such short notice will be disruptive as petroleum dealers will not be able to absorb this additional cost”.
He further requested banks to discuss the matter with oil companies, petroleum ministry and finance ministry in order to arrive at a workable solution and to defer their decision to impose MDR for fuel transactions effective January 9, 2017.
Banks however say that their decision to levy MDR follows from the circular issued by the government on December 8, 2016 where it announced package for promotion of digital and cashless economy. Within the same, the government had said: “The Central Government Departments and Central Public Sector Undertakings will ensure that transactions fee/MDR charges associated with payment through digital means shall not be passed on to the consumers and all such expenses shall be borne by them. State Governments are being advised that the State Governments and its organisations should also consider to absorb the transaction fee/MDR charges related to digital payment to them and consumer should not be asked to bear it.”