Earlier set to kick in from April 1, the new rules require banks to send a notification to customers a day before their automatic payments are due, with a choice to opt out. As most banks have not yet updated their systems to comply with this requirement, most such transactions were set to fail. The new rule will now kick in from October 2021.
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The extension aims to prevent any large scale “customer inconvenience and default”, the central bank said in a circular on March 31, adding that it would take action against banks that haven’t updated their systems.
“This non-compliance is noted with serious concern and will be dealt with separately. The delay in implementation by some stakeholders has given rise to a situation of possible large-scale customer inconvenience and default,” the RBI circular said, adding, “Any further delay in ensuring complete adherence to the framework beyond the extended timeline will attract stringent supervisory action.”
ET was the
first to report earlier this week that banks including SBI, Axis Bank, HDFC Bank and ICICI Bank as well as card companies such as Mastercard and American Express were not in compliance with the new rule and were thus prepared to decline all recurring payments from April. Transactions worth over Rs 2000 crore were set to be disrupted in April due to this rule.
The extension will bring relief to millions of people who use recurring payments for various subscription services and utility bills, and to the companies that offer these services, from streaming platforms to news websites and even power companies.
In August 2019, the RBI had issued a framework for processing of e-mandates on recurring online transactions. Initially applicable only to cards and wallets, the framework was extended in January 2020 to cover Unified Payments Interface (UPI) transactions as well, the central bank said.
But most banks still haven’t upgraded their systems to comply with the new rule as “the design flow is complex,” according to industry insiders. RBI’s rule also said that for recurring payments of over Rs 5,000, banks must send customers a one-time password, essentially negating the auto-debit option.
“The requirement of additional factor of authentication (AFA) has made digital payments in India safe and secure. The primary objective of the framework was to protect customers from fraudulent transactions and enhance customer convenience,” the central bank said.