The Reserve Bank of India (RBI) in a study has noted that there has been a “fundamental shift” in the payment habits in the economy post demonetisation. The country’s central banking institution evaluated the impact of demonetisation on inter-bank payment and settlement systems against the backdrop of progressive use of electronic modes of payment. The study that was conducted under the guidance of Sasanka Sekhar Maiti of RBI’s Department of Statistics and Information Management, obeseved two significant outcomes. First, there has been a reduction in the usage of cheques prior to demonetisation; and second, since demonetisation, cash transactions have moved in a sustained manner to non-cash mode of payment systems via retail electronic payment systems, point of sale terminals and cheques.
The study empirically investigated the effectiveness of the RBI’s interventions in migrating transactions to electronic mode. It also evaluated the impact of demonetisation on the non-cash mode of payments.
As per the study, cheque volumes and values contracted during the pre-demonetisation period but recorded positive growth during demonetisation as well as post-note-ban months. “The increase in usage of cheques could be an effect of demonetisation as cash availability was restricted and cheque became a convenient instrument to transfer funds, which takes one or two days given the substantial reduction in settlement cycle on account of implementation of cheque truncation system,” it explained.
It also added that there was an increasing trend of cheque value over time till the intervention on service charges, which is statistically significant. The retail electronic payments data have multiple breakpoints due to the introduction of new systems and other policy interventions over time, the report said.
In summary, the report concluded that RBI’s interventions on promoting electronic modes of payment appear to have facilitated a reduction in the usage of paper-based instruments, such as cheques. The report further added that demonetisation impacted the inter-bank payment and settlement systems significantly in moving cash transactions to non-cash modes of payments in three segments, viz., retail electronic payments, card usage at POS terminals and cheques. The increased usage of these three instruments during the demonetisation period has been sustained in the post-demonetisation period as well, suggestive of a fundamental shift being underway in payment habits of the Indian economy.