To encourage digital transactions, the Reserve Bank of India (RBI) on Friday decided to slash MDR charges on payments made through debit cards and do away with levies on small transactions through mobile phones and Internet from January 1 to March 31.

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The Merchant Discount Rate (MDR) for debit card payments, including for payments made to government, will be capped at 0.25% for transactions up to Rs 1,000 and 0.5% between Rs 1,000-2,000, RBI said in a notification.

The existing MDR cap is 0.75% for transactions up to Rs 2,000 and 1% for over Rs 2,000. However, there is no RBI cap on MDR on credit card payments.

RBI said reduced charges will "come into effect from January 1, 2017 and shall be applicable till March 31, 2017.

In the intervening period, Reserve Bank will review the framework for charges for electronic payment transactions, in consultation with the stakeholders.

Similarly, it has asked banks and prepaid payment instrument issuers not to levy any charges for transactions up to Rs 1,000 from January 1 to March 31.

This would cover transactions through Immediate Payment Service (IMPS), USSD-based *99# and Unified Payment Interface (UPI) systems.

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The relaxations, RBI said are in tandem with initiatives taken by the government to "incentivise greater adoption of digital payments by large sections of the society."

Post demonetisation of old Rs 500 and Rs 1,000 banknotes, several banks including SBI, ICICI Bank, Axis Bank and Yes Bank have waived MDR charges on debit card transactions till December 31.

Merchant discount rate is the rate charged to a merchant by a bank for providing debit and credit card services. The rate is determined based on factors such as volume, average ticket price, risk and industry.

As of October 2015, there were 61.5 crore debit card users and 2.3 crore credit card holders in the country.

Government has announced a slew of measures, both for customers and merchants, to encourage digital payments in the country ever since it sucked out a large portion of cash circulating in the economy.

Steps have been taken to make petrol, railway tickets and insurance policies of PSU companies cheaper if bought through debit/credit cards or other digital modes.

Besides, a lucky draw cashback reward scheme for consumers and merchants will start from the Christmas till mid of April for Rs 50-3,000 transactions through digital means.

ALSO READ: Demonetisation: SBI waives merchant discount rate on Master, Visa debit cards

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