Cashless economy and the banking.

There is lot of talk going on in the country about moving towards cashless economy. Right from the common man to the Prime minister of the country the subject of cashless transactions has attracted attention. Rather, the discourse has been brought to Centre stage by the Modi government in its efforts to clean up the economy from black money dirt. What it means to the banks? How banking is impacted from this shift from cash intensive economy to cashless economy? More than banks, it means a lot to the government.

The first and foremost and immediate benefit of this shift is, it will bring businesses/all the transactions to the tax bracket. This will improve the tax mop up substantially and effortlessly. This single step is a very effective tool and has twin advantages. Two birds can be hit with a single stone. One - tax collection will improve. Two - black money generation is restricted to that extent. The beauty of this is, one is inversely proportional to the other. The more the tax collection, the less is the generation of black money. After all black money is that part of the earnings which is not taxed/accounted for.

Coming to the banks - enormous number of accounts will be opened. Footfalls will increase manifolds. Because large section of the population in India and vast geographical area is still unbanked. This section of the population is forced to enter the banking system whether or not they are interested. Because henceforth it will become a basic necessity. Banks must gear up to receive this influx of new customers to their books. They have got to put in place the men and machinery required for this surge of clientele. And they don't have a choice. They have got to oblige all and sundry. They just don't have the option of choice of the customer. Even now public sector banks don't have that option. This will affect various profitability ratios adversely because banks will end up doing something which given an option they would have avoided. But private and foreign banks are extremely discriminative in the choice of the customers. This has to be put an end. A level playing field has to be created for all the banks. There is also in the air, something called Banking Transactions Tax (BTT) as a part of tax reforms. Government has to pay the banks a percentage of this BTT for their work to compensate their transaction costs. Banking transactions tax (BTT) and cashless transactions may one day in future go hand in hand. And it is for the good of the Nation.