The ill advised and illegal move of RBI to “Disincentivise usage of Cheques” through policy measures of penalizing cheque issuers and cheque beneficiaries is likely to have a serious negative impact on the economy with a significant increase of cash in private hands.
The apprehension that penalizing Cheque usage may lead to slippage of the economy into more cash usage has been recognized by the RBI but is being wished away as an issue that can be addressed with further penalization of cash transactions. The discussion paper suggests charging for Cash withdrawals and Cash deposits may be for transactions beyond a minimum number or value.
Penalizing an alternate that a consumer may use with further penalties is a “Negative Approach” to management and is likely to only trigger an “Emotional Disconnect” between the consumer and the service provider. We see this in the Income Tax arena where no IT payer is friendly with the IT collector. He sees the IT system as an unwelcome robber of legitimate revenue earned by him. This feeling has been reinforced over a period of time with every genuine tax management effort of a citizen being penalized with further provisions while the money collected is visibly used for the benefit of corrupt politicians in the Government. If Banks slip into this mode of penalizing every alternate measure adopted by the customer to avoid charges on cheques, then we will gradually see a build up of anti-bank sentiments. While RBI allows usurious charges to be made on say credit card borrowings both in terms of interest at the rate of over 36% p.a. and late payment fee of over 1000% p.a, pre-closure charges etc., if Banks start charging for switching over from cheque system to cash since they consider it more convenient, we will see bank customers trying to build some alternate methods of cash management to avoid the Banking system itself. . RBI will then have to keep a separate division to check the violation of banking laws by citizens and start prosecuting such persons all over the country. Like IT department running a large enforcement wing, RBI will also need to have an enforcement wing for the purpose with the attendant costs.
In the meantime the private sector will be finding its own Cash Management syndicates where cash will be collected from the doorsteps of a business each evening and managed for the benefit of the customer. Members of a closed system may even find ways of inter account transfer and we will soon have a local money exchange service which may provide door delivery of cash withdrawals also. “Door to Door Cash Service” will therefore spring up initially in small communities and later as networks. Money will move out of the Bank system and remain in this alternate system. As the volume grows RBI needs to step in to plug this as a “loophole” and take up enforcement of its ill advised policies. If Desk to Desk couriers can survive the competition of the mammoth Postal service, it is not unthinkable for the Door to Door cash managers to carve out a profitable business model. Afterall the system is already in place in the Havala market defeating the Exchange contro regulations which is basically illegal. On the other hand the local cash exchange may be more legal until such time that laws are changed to make them illegal.
I hope RBI will realize its folly and withdraw the discussion paper and the suggestions contained there in at the earliest.