The cost of cash in India

[raniraja]

India’s love for cash costs $3.5bn a year
Mayur Shetty, TNN | Jan 19, 2015, 12.44AM IST

MUMBAI: The Reserve Bank of India and commercial banks annually spend around Rs 21,000 crore ($3.5 billion) in currency operations costs while citizens of Delhi alone spend Rs 9.1 crore and 60 lakh hours in collecting cash. The scale of this burden is unique to India considering that it is among the most cash-intensive economies in the world with a cash-to-GDP ratio of 12%, almost four times as much as other markets such as Brazil (3.93%), Mexico (5.3%) and South Africa (3.73%).

There are many reasons why India has to pay such a high price for its payments. One is the need to frequently reissue notes due to poor handling — low-value notes have to be replaced in less than a year. The other reason is the need to frequently upgrade security features and replace old notes. There is a huge cost in pulling old notes out of circulation and replacing them. India also has unique issues in logistics and in some places the currency notes have to be transported by helicopter.

A report on 'Cost of Cash in India' commissioned by MasterCard and brought out by the Institute For Business In The Global Context has highlighted how much of a drag the overdependence on currency for payment is turning out to be. One reason for the increased dependence on cash is the lack of access to banking with a third of the population over 15 years not having used a bank account.


The report also highlights that although mobile banking has picked up, it is not yet being used for payments. There has been a jump in electronic payments since 2007 with its share increasing from 2.6% to 6.8%. This is largely due to the development of non-cash payment systems such as the Real Time Gross Settlement (RTGS), National Electronic Funds Transfer (NEFT) and National Electronic Clearing System (NECS). But the report says that growth in these segments has typically benefited the commercial sector more than retail clients.

The value of transactions through ATMs has grown six-fold from Rs 3 lakh crore in 2007 to about Rs 18 lakh crore in 2012, according to the report. However, when the ATM transactions are weighted for population, India continues to fare poorly even when compared to lesser developed markets such as Kenya, Niger or Egypt. According to RBI data, in 2013, 15,400 crore banknotes were issued globally, of which the maximum banknotes, 5,400 crore, were issued by China and almost 2,000 crore by India. The global projections for the next three years have been worked out at 16,000 crore, 16,600 crore and 17,300 crore banknotes, for the world, China and India, respectively.

"The steps taken by RBI over the years strive to make the idea of financial inclusion a reality. Innovations in the electronic payments space not only deliver greater transparency but more importantly, they simplify transactions, enhance security, increase efficiency and have the potential to dramatically reduce costs," said VikasVarma, area head, south Asia, MasterCard.

The report also busts the conventional wisdom which assumes that cash is free. Citing the example of Delhi, the report says that residents spend 60 lakh hours and Rs 9.1 crore ($1.5 million) to obtain cash. Compared to this, Hyderabad, which is smaller, spends 17 lakh hours and Rs 3.2 crore ($0.5 million) to do the same, which corresponds to fees and transport costs about twice as high as Delhi on a per capita basis.

Are electronic transactions that cheap ? Can anyone publish a comparison of cash and electronic transactions?

[sgars]

Look at who has published the report. They are just doing it when the loha is garam with the Jan Dhan Yojna. A lot of companies come up with studies which are indirect sales efforts plus some image building.

Per transaction, electronic transactions may be cheaper, but there is an initial set up cost. Probably with some lower cost items like a card reader that fits to your smartphone, we might see sabziwalas also using cards. Plus you have all the commission MasterCard or visa charge ( which may be way over 9 cr in Delhi)

A number comparison would be very difficult, otherwise MasterCard would also have done that.

One thing to note is that a lot of merchants prefer cash to avoid paying taxes.

[raniraja]

Originally Posted by sgars

Look at who has published the report. They are just doing it when the loha is garam with the Jan Dhan Yojna. A lot of companies come up with studies which are indirect sales efforts plus some image building.

Per transaction, electronic transactions may be cheaper, but there is an initial set up cost. Probably with some lower cost items like a card reader that fits to your smartphone, we might see sabziwalas also using cards. Plus you have all the commission MasterCard or visa charge ( which may be way over 9 cr in Delhi)

A number comparison would be very difficult, otherwise MasterCard would also have done that.

One thing to note is that a lot of merchants prefer cash to avoid paying taxes.

The Jan Dhan loha is garam for RuPay card. Do you know that the nationalized banks are giving the RuPay card free ?? My Visa debit card expired and when I applied for renewal, I got a RuPay card for free (no visa card, will have to get an extra one by paying for it). I have a feeling that this govt. may end up promoting the Rupay card at the cost of Visa/mastercard/diners/thomas cook etc..

How much is the initial setup cost ? One sees the guys at the petrol pump with those hand held devices for debit/credit card payments.

[sarv_shaktimaan]

Jandhan bank acc will help disburse salary to low wages earner. Mazdoor traveling from ghaziabad noida haryana to delhi in trains for work were looted easily on first few days of the month when they carry their salary.

Other benefits are obvious.. A huge pool to insure and 1 lakh rupees in case of accidental death. Tax filing even for no returns.

[raniraja]

Still I don't see electronic transactions at the micro level. I mean, it takes more time comparatively.

[sgars]

Originally Posted by sarv_shaktimaan

Jandhan bank acc will help disburse salary to low wages earner. Mazdoor traveling from ghaziabad noida haryana to delhi in trains for work were looted easily on first few days of the month when they carry their salary.

Other benefits are obvious.. A huge pool to insure and 1 lakh rupees in case of accidental death. Tax filing even for no returns.

There are a lot who do not have enough to eat. how will they manage bank accounts. i am pitying the bank employees who will be overburdened.

THis is the worse half of an ex banker speaking here

[raniraja]

Originally Posted by sgars

There are a lot who do not have enough to eat. how will they manage bank accounts. i am pitying the bank employees who will be overburdened.

THis is the worse half of an ex banker speaking here

When ATMs were introduced, they were touted as being a boon both for the banks and the customers. And they have proved to be a boon. If they have resulted in reduction in the footfall and costs, I don't understand why the banks are hell bent on charging the customers for that service.

Mobile banking may create a huge problem for micro-payments because nowadays they require an OTP (One time password) which is SMSed to you. Unless they make do only with the PIN, it will increase the headache. Otherwise it is a great idea.

[sarv_shaktimaan]

Electronic transactions will come in time. Just like when working at Toyota I asked a Jap bigshot Manager we don't have roads and traffic sense in India where will Camry and Corolla and other cars run .. He said all over world cars come first then the roads.