Withdrawal tax casts the Net wide for e-payment network

The finance ministry's decision to introduce cash withdrawal tax on current accounts is expected to give a leg-up to real time gross settlement (RTGS).

Withdrawal tax will promote other forms of payment such as electronic fund transfer and plastic, said senior bankers.

This is good for the economy as it would enable reduce the cost of handling cash and transaction settlements would be instant, said a bank chairman.

A global standard for managing fund transfer, RTGS reduces risks and boosts investor confidence, apart from helping companies manage their working capital requirements more effectively.

It short, it allows companies to collect funds from customers and move money to and from plant sites faster, thereby helping their bottomline's cause.

RTGS was kicked off on March 26 last year with State Bank of India (SBI), HDFC Bank, Standard Chartered Bank and Saraswat Co-operative Bank as part of the initial network.

At present, over 109 banks are a part of the network. In April 2005, the number of transactions stood at 53,165 totalling over Rs 5 lakh crores.

Of this, customer and corporate deals stood at 15,901 worth Rs 57,000 crore, according to a RBI official.

Individuals and corporates are expected to move to the RTGS platform as this would enable companies to transfer fund instantly and escape the newly introduces withdrawal tax, said a senior official with a private sector bank.

In addition to this, it will cut down on paper work and also help big companies save over Rs 2,000 per Rs 1 crore worth of transactions using RTGS, a global standard for managing fund transfers, he added.

RTGS will also reduce the risk of counter-party default and boosts confidence, apart from helping companies manage their working capital requirements more effectively, said another private sector bank official.

It short, it allows companies to collect funds from customers and move money to and from plant sites faster.

For individual account holders, electronic fund transfer would be the best option as money will reach the account on Day Zero itself or the very day a demand draft is presented to a bank, said a senior banker.

At present, this process takes about three days. Not only that, the system also cuts out the risk involved in shipment of physical demand drafts.