ARUNDHATI BHATTACHARYA, who heads State Bank of India, the country’s largest bank, has said that the government should find ways to disincentivise cash transactions, such as imposing a charge or levy above a specified limit or threshold, after normalcy is restored in banking operations following the demonetisation move.
According to Bhattacharya, if India wants to de-emphasise cash, there should not only be an incentive for people to move towards a cashless economy but also a disincentive for transacting excessively in cash, while leaving out small-ticket transactions.
“Cash imposes a huge burden. We don’t understand it as it is not immediately visible. It is a huge burden on society. Why should a country have to take on itself a huge burden of managing a totally cash economy? It is not cheap and the physical infrastructure to maintain cash is not cheap,” she told The Indian Express in an interview.
India has a cash-to-GDP ratio of over 12 per cent, which is believed to be relatively high compared to many of its peers, reflecting the fact that digital transactions or payments have yet to gain pace, although efforts are now underway in this regard.
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In 2005, when the UPA was in power, the then finance minister P Chidambaram had introduced a Banking Cash Transaction Tax (BCCT) of 0.10 per cent or ten basis points of the value of banking transactions for withdrawal of cash of over Rs 10,000 on one day.
The government had then said that this was part of anti-tax evasion measures and aimed at preventing the generation and laundering of black money through banking channels. But the BCCT was abolished in 2009 during the second term of the Manmohan Singh government.
According to Bhattacharya, with the increased spread of banking and, going by the latest survey that shows 91 per cent of households have bank accounts, the time may be opportune now for a charge or levy.
“People are used to cash and getting them out of that is going to be a long and tough exercise. We have to continue to do something to keep up this push,” she said.
Bhattacharya said that even after the withdrawal of high-value notes, leading to a scramble for cash at bank branches, SBI was opening 1 lakh accounts a day, including those for financial inclusion.
During this period, there has been a huge increase in Point of Sale (POS) transactions and e-wallets. But she flagged off the cost for banks in maintaining the infrastructure needed to keep cash — extra payments for staff, security and transportation charges, recalibration of lakhs of ATMs and the loss of normal banking business — which is bound to hit the sector’s bottomline.
“This cost is something that will impact us immediately. The cost is something that the government should look at and help us. This is where the government can do a little hand-holding… that would be much appreciated,” she said.
Bhattacharya said that the current withdrawal restrictions may be lifted only when there was an adequate amount of bank notes in the system. She also said that the impact of demonetisation on the economy was reflected in consumers deferring discretionary spending and in lower demand.
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