Auto-debit payments: RBI extends timeline for implementation of new rules

The new norms were supposed to kick in from April 1 but neither banks nor the other stakeholders in the ecosystem had readied their system

The Reserve Bank of India (RBI) on Wednesday extended the deadline until September 30 for all stakeholders to move to the new norms on e-mandate for recurring payments of online transactions. It also came down heavily on banks for not implementing the system in time and threatened "stringent supervisory action" if the deadline is missed again.

In a circular issued on Wednesday, the RBI said: “The delay in the implementation by some stakeholders has given rise to a situation of possible large-scale customer inconvenience and default. Any further delay in ensuring complete adherence to the framework beyond the extended timeline will attract stringent supervisory action”.

Though the RBI was initially adamant about not extending the deadline as banks and other stakeholders in the ecosystem had ample time to comply with the new norms, given the unpreparedness of the players and the possibility of huge inconvenience to customers, it budged.

The RBI said the framework had not been fully implemented even after the extended timeline. “To prevent any inconvenience to customers, the Reserve Bank has decided to extend the timeline for the stakeholders to migrate to the framework by six months, i.e., until September 30, 2021,” the regulator said.

The regulator also said this non-compliance (missing the April 1 deadline) is noted with “serious concern” and will be dealt with separately.

This comes after banks started informing customers about cancelling the service of e-mandates for auto-debit of funds from cards. Leading private banks had been sending messages to customers that they would have to transact on their own for services they want to avail, instead of banks deducting the fee automatically on their behalf.

For example, Axis Bank had communicated to its customers that in accordance with regulatory requirements, “processing of e-mandates for recurring transactions”, registered on credit or debit card, “without Additional Factor of Authentication (AFA), will be discontinued w.e.f. April 1, 2021”. It advised customers to pay at the merchant website or application themselves.

The new norms that were supposed to kick in from April 1, for which the RBI had issued a notification in August 2019, entailed banks to check with customers by notifying them and getting their approval for recurring payments through debit and credit cards before processing such transactions.

“As a risk mitigant and customer facilitation measure, the issuer shall send a pre-transaction notification to the cardholder, at least 24 hours prior to the actual charge/debit to the card”, the notification had said.

The new norms mandated the use of AFA during registration and first transaction (with relaxation for subsequent transactions up to a limit of Rs 2,000, since enhanced to Rs 5,000), as well as pre-transaction notification and facility to withdraw the mandate.

Suresh Khatankar, deputy managing director, IDBI Bank, said: "The bank is doing system modifications to make changes in standing instructions to meet the new requirements. The new system comes with a two-factor authentication regime: First in the mandate given to the bank and second – OTP sent to ensure that payments are authorised.”

The primary objective of the framework, according to the RBI, was to protect customers from fraudulent transactions and enhance customer convenience. It also said during the extended timeline, no new mandate for recurring online transactions shall be registered by stakeholders, unless such mandates are compliant with the framework.