Reserve Bank of India (RBI) Governor Sanjay Malhotra reported on Wednesday that the introduction of a 'small commission' in the form of a Merchant Discount Rate (MDR) will not have a 'significant impact' on UPI transaction volumes.
Speaking to journalists at the central bank's headquarters, he noted: 'Currently, we are not observing a decline in volumes. And I personally do not think that a small commission will have a significant impact on volumes.'
It is worth noting that last month the government permitted the collection of MDR, under which transactions exceeding 2000 rupees are subject to a 0.4% commission.
Speaking to journalists several hours after the rate hike announcement and emphasizing that a rate reduction is ruled out, Malhotra stated that bank credit growth will remain strong in the future and continue to contribute to overall economic activity.
He acknowledged that the RBI is aware of the potential negative impact on asset quality for non-bank lenders amid liquidity surplus, but clarified that the central bank does not expect such a development.
Furthermore, he added that systemic liquidity will not remain in such a high surplus as in recent weeks for a very long time.
The career bureaucrat who became a central banker pointed to the FCNR(B) scheme, through which banks attracted nearly $133 billion in deposits from the diaspora under a preferential swap mechanism, as an example of the strength of the country's macroeconomic fundamentals. He also expressed confidence that banks will use the attracted funds wisely.
Malhotra mentioned that external difficulties have led to a decrease in flows and added that pressure on the current account is a temporary phenomenon. He radiated confidence in the swift return of the balance of payments to surplus, citing several supporting factors.
Malhotra declined to comment on the issue of RBI rejecting Tata Sons' request to revoke the NBFC license and asking the largest business conglomerate to bring its operations into compliance with top-tier NBFC norms, which is at the center of a protracted dispute between major owners and the holding company's management.