Why this Kolaveri

During the last 10 days, Naavi.org has been discussing the implications of the discussion paper released by RBI for public comments on “Disincentivisation of the use and issuance of cheques”. We have pointed out several dimensions of the discussion paper and strongly opposed even the mention of “Disincentivisation of cheques by RBI” as a thought. Many readers and also some of my friends in RBI may wonder why this Kolaveri? I therefore owe an explanation even if it is a repetition of the thoughts already expressed.

To start with, I have stated many times in the context of G.Gopalakrishna Working group report and the Damodaran Committee report that senior executives in RBI including Deputy Governor Dr K.C.Chakravarthy are known for their sympathies to Customer service in Banks. RBI demonstrated it by making substantial changes to the original recommendation which the GGWG had put up and removing the anti consumer recommendations before the final notification was done. By upholding the earlier recommendations of the S.R.Mittal Group on Internet Banking in 2001, GGWG final notification preserved the legal position of consumer interests in Indian banking intact.

This was quickly followed by the Damodaran Committee report on Customer Service which was rightly consumer centric and was therefore a welcome measure.

However, since then the forces that are dictating terms to RBI have taken over and are having a field day once again. First of all the Damodaran Committee report never saw the light of the day as RBI failed to notify it in the form of a circular. Now the discussion paper on disincentivisation of the use of cheques is being used as a tool to soften the legal system that protects the Banking customers by making E Banking a “TINA” option (There is no alternative). Only those persons who are watching the moves of RBI closely will understand how the hidden agenda of some of the vested interests are working in getting the Banking policies in India changed to the disadvantage of the Bank customers.

Who are these vested interests which are forcing RBI to take anti consumer decisions? is a matter that we need to investigate.

According to my assessment, a lobby of prominent Bankers are continuously working towards protecting their interests against the customer’s interests regarding Banker-Customer disputes. It may consist of Banks who have a large number of Cyber Frauds in their system and are facing legal cases already in different forums. If these cases are decided on merits with reference to Banking Law and Practice, they will all end up facing a situation where they have to absorb the risks of Cyber Fraud losses not only for the cases which they are now facing but also those arising in the future.

These Banks are aware that technology is profitable in terms of transaction cost and therefore good for their profits. They also know that E-Banking is not safe and the risks are on the increase. But true to the current business trend, they want to preserve their profits even if it means killing the customers.

The intention of such vested interests will be best served by destroying the traditional system of Banking and creating an entirely new system of Banking where the E Banking risks are transferred to the customers.

Unfortunately, way back in 1998, RBI determined that in India we shall have E Banking only as an extended delivery channel for the traditional Banking activities and not as a separate E Commerce activity. The Banks therefore had the advantage of being touted as “Safe Investment options” and mobilize public savings during the last 2 decades. Now at a time when risks are glaring in their face, they want to retain the best of both worlds namely the “Safety” tag for resource mobilization and the profitable option of E Banking. Since the traditional banking laws and practice are coming in their way, they are out to destroy the current system.

I have tried to explain this concept in some of my earlier articles to which links are available at the end of this article but would like to briefly reiterate the same.

The biggest Cyber Fraud risks both in Internet banking and Credit cards is the risk of a customer’s signature being forged for authentication of the transaction. This may happen in the form of stolen passwords being used for access to the banking account or the signature on a credit card charge slip.

Since as per Banking laws in India, “Signature” is the essence of authorization of any debit and “Forgery” is a nullity, Banks cannot debit the customer for any forged instructions even when a certain amount of negligence can be ascribed to the customer which was incidental to the commission of the fraud. This subtle legal position makes Banks liable in every case of Phishing and Stolen Credit card encashment.

Further, the concept of “Banker-Customer” relationship being considered as “Debtor-Creditor” relationship where a depositor is deemed to have lent his money to the Bank and the Bank uses it in its business with an obligation to return as per the terms of the account such as payable on demand or otherwise by cheque or otherwise. When therefore a fraud occurs and the balance in the account of a customer vanishes, the legal position is that money in the custody of the Bank has been stolen and the so called “Balance in the account” is only an entry in a book of account. The responsibiltiy of the bank to restore the balance is therefore absolute.

For the current day Bankers for whom debit or credit has little meaning beyond the key board strokes, the banking law may be alien. But for RBI as well as the legal system of the country, the Banking law is paramount. Any organization that has received the license as a “Bank” is only entitled to that privilege as long as they are doing “Banking business” as defined in Banking Regulation Act which defines Banking Business as “Acceptance of deposits for the purpose of lending and repayable on demand or otherwise, by cheque, draft or otherwise”.

“Cheque Facility” is therefore an integral part of Banking and RBI as the licensing authority cannot therefore take any policy stance that shows that it is not in favour of the use of cheques. It is for this reason I consider the discussion paper as ultra-vires the basic charter of RBI.

Many would argue that what has been released is only a discussion paper, its main intention is to find ways and means of promoting E Banking and it does not indicate any policy decision. However I would urge public not to be fooled by such arguments. This reminds me of the way British entered our country under a false pretense and ended up making all of us their slaves, looted the wealth of the country, permanently divided the country, making us suffer all through.

It is clear to me that the discussion paper indicates an undercurrent of a policy shift according to which over the next few years, cheques will be eliminated and all Banking will be E Banking only. When that happens, it would be easy to convince the Courts that traditional Banking laws are not relevant and hence customer liabilities for frauds cannot be decided on the existing principles. It is for this reason that I consider that preservation of the Cheque based banking system is good even for the Netizens who today are going behind convenience and embracing E Banking unmindful of the risks.

The reason why I suspect that RBI is misleading the public is that they have released this discussion paper only in the Internet media and not through open news paper advertisements as they should have done. The matter is of concern to those who donot access Internet and therefore expecting them to send a response by email to a document on the RBI website is unthinkable. In fact most of the Netizens also find it extremely difficult even now to locate the paper on the RBI website and ask me for the link. If RBI wants to claim that they are fulfilling a formality by releasing the discussion paper to public, they should admit that they are actually trying to cheat the public by deception.

I have already indicated that there are some senior executives in RBI who are well aware of the RBI’s traditional role and would not support this move. I however consider that they have been reduced to a minority and pushed to a corner forcing me to say that RBI is impotent and incapable of implementing its own stated policies. Presently it is the the industry which is dictating terms to RBI. Even when RBI issues circulars to Banks, Banks ignore them and carry on as if RBI does not exist. It is high time that RBI regains its designated role as a Central bank of the country and the banking regulator in the interests of the citizens of the country and not the business interests.

In pushing the agenda for promotion of E Banking, RBI has ignored the impact on Senior Citizens, semi literate and illiterate persons, SMEs, Charity organisations, Cooperative and Rural banks and several other category of bank users. RBI has ignored why the UK banking system had to change its decision to phase out cheques and give a public commitment that cheques will continue as long as people want and based its recommendations on such insignificant countries such as Ireland, Nigeria etc.

I suppose that through the many articles which have appeared here, I have strengthened the hands of those fringe elements in RBI who still consider that RBI is for the people of India and not a commercial promoter of the interests of individual commercial Banks.

I would however appeal Consumer Organizations in the country, Media, SME associations and all right thinking individuals to participate in this debate and support the view point that the proposal for disincentivisation of cheques should be abandoned for ever.

Please send an email today to RBI chequeusage@rbi.org.in giving your views. You can refer to the discussion paper and my detailed views in the following articles.

I regret if If  I have hurt any RBI officials in the process of putting through my points. I hope the essence of my view would ultimately be appreciated by all.


Links to earlier Articles:

1. Cooperative banks need to gear up to Internet Banking
2. Dear RBI Governor, Can you do what you are suggesting others?
3. Dear Senior Citizens, You are unwelcome at Banks..implies RBI
4. RBI Move will encourage Private Cash Management Services
5. Why Cheque System is also important for Netizens
6. RBI is impotent.
7. RBI’s conspiracy by silence
8. RBI set to rob Rs 10000 crores from Bank customers!
9.  A Note for the attention of SMEs- on Cheque Disincentivisation
10. Executive Director RBI calls for Round Table for discussion on Cyber Fraud liability
11. Naavi.org Response to RBI Discussion Paper on Disincentivisation of Cheques
12. Message sent to RBI through the website of RBI
13. “Banking is a Fundamental Right” says Dr Chakravarthy, Dy.Governor of RBI
14. UK dropped Cheque stoppage proposal after public outcry..Why India should not?
15. Message sent to Payment and Settlement Department RBI through the website
16. Digital Divide threatens Indian Banking
17. RBI has been taken over by hawks
18. Why RBI is wrong
19. RBI is recommending unreasonable and Usurious charges for customers
20. RBI out to openly violate laws of banking
21. Phishing Frauds and Customer Liability
22. Usage of Cheques are being disincentivised

Copy of the discussion paper on Naavi.org: 

Copy of the discussion paper on RBI website:

Response to be sent to : chequeusage@rbi.org.in

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About Vijayashankar Na

Naavi is a veteran Cyber Law specialist in India and is presently working from Bangalore as an Information Assurance Consultant. Pioneered concepts such as ITA 2008 compliance, Naavi is also the founder of Cyber Law College, a virtual Cyber Law Education institution. He now has been focusing on the projects such as Secure Digital India and Cyber Insurance
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