Mumbai: National Payments Corp. of India (NPCI), which operates the national financial switch (NFS), on Friday cut the interbank transaction fee by 20% to 80 paise, according to a person familiar with the development.

Reduced payment: NPCI has reduced the rate in deference to banks’ demands and plans to make deeper cuts later. Bloomberg

The move, which will apply to all retail transactions between banks, is expected to bring some relief to the lenders.

NPCI has reduced the rate in deference to banks’ demands and plans to make deeper cuts later when retail payments will be enabled to take effect 24x7, said the person mentioned earlier. He declined to be named because he is not authorized to speak to the media.

The 24x7 facility is likely to start in a year’s time, he said.

NFS was earlier operated by the Institute for Development and Research in Banking Technology (IDRBT), a subsidiary of the Reserve Bank of India (RBI). It was later transferred to NPCI, which was floated by a consortium of 10 domestic and foreign banks in December 2009.

The NFS facility is currently used by 49,500 ATMs (automated teller machines) of 37 banks, which average around 1.6 million transactions a day.

Initially, IDRBT charged Rs2 per interbank transaction, but this was waived by RBI in December 2007 to reduce ATM usage costs to banks and subsequently to customers. However, NPCI re-introduced a Re1 charge beginning January, after it took over NFS.

Customers can currently withdraw up to Rs10,000 a month at ATMs of any bank free of cost up to five times a month. Online transactions are free.

Even at Re1, though, the interbank transaction fee is lower than what other service providers, such as Mastercard, Visa and Cashnet, charge banks.

Though these providers do not disclose their fees, banking industry experts estimate it to be at least Rs2.50.