RBI takes baby steps to reduce frauds, fix rates

Double authentication via Aadhaar for card transactions and fixed interest products for long tenures will help customers

The Reserve Bank of India’s (RBI) Second Quarter Review of Monetary Policy 2012-13 wasn’t much of a surprise. A marginal cut – 25 basis points – on the cash reserve ratio means another Rs 17,500 crore will be released in the banking system.

Given that most banks have already doled out their festival offers, there is likely to be little change in the interest rate scenario that will encourage buyers to go for a house or car aggressively. But there are some little gems in its Payment Systems in India – Vision 2012-15. There are a number of proposals, such as promoting online transactions in lieu of cheque usage, an additional batch in the National Electronic Fund Transfer or NEFT and pan-India rollout of the cheque truncation system by December 2013, which will benefit the customers significantly. The latter will ensure that cheques are encashed in one day instead of the existing three to seven days, depending on location.

However, one strong proposal, though still at a pilot project level, is double authentication of card transactions through Aadhaar. It means that, along with swiping the card, the Aadhaar biometric authentication – either through an Iris scan (scanning of eyes) or a fingerprint – will also be required for both at ATMs and PoS terminals.

So, stolen cards will be useless as transactions won’t be possible without a fingerprint or Iris scan. The pilot project will start in Delhi from November 15.

With around 200 million debit cards and 19 million credit cards in circulation, both bankers and customers would welcome it. According to Harsh Roongta, CEO, apnapaisa.com, “Of course, banks will have to incur additional costs in terms of an additional machine and even UIDAI (Unique Identification Authority of India) may charge some amount, but the reduction in frauds will more than make up for it.”

While no exact numbers are available on the amount lost due to frauds, bankers say that around two-five per cent credit card transactions are fraudulent. Besides the loss in amount, there are unnecessary legal hassles with customers.

From the time it has been introduced, Aadhaar has been struggling for acceptability from bankers, insurance companies and investment managers, because it does not work as a proof of citizenship. So, like the permanent account number or PAN card, it is being used just as a photo identity, said banking professionals. With the apex bank’s push, things could change.

Another big requirement for risk-averse customers, the need for a long-term fixed rate product, has also been addressed. RBI has said that the K K Vohra Committee will put out the draft report by mid-November. Borrowers can look forward to 20- or 30-year fixed interest rate products. Most banks, at present, either do not have such products or the difference between fixed and floating is as high as 150 basis points or more. Some provide fixed loans for short tenure loans, such as five years. Industry experts said that consumers will be quite happy paying 75-100 basis points more in the fixed option as it ensures steady outflows for a large number of years.