The mess over merchant discount rate (MDR) at fuel stations in India is close to resolution.
State-owned fuel retailers Indian Oil Corp. Ltd, Bharat Petroleum Corp. Ltd and Hindustan Petroleum Corp. Ltd have agreed to pay MDR, a fee on card usage at swipe machines, for fuel purchased using debit cards. This means neither the fuel buyer—who used to pay this fee—nor the dealer will have to pay it.
Two officials from OMCs who confirmed the development said a notification on the same is likely in a few days. Both spoke to Mint on condition of anonymity.
“The implementation process is being worked out now. Earlier, the fuel dealers used to be debited with the MDR and then there was a process of reimbursing them. Now, we are going to directly route MDR through the OMCs to the bank,” said one of the two officials cited earlier.
MDR is a bank fee levied for using debit and credit cards on swipe machines. The fee is 1% on credit card transactions and 0.25-1% on debit card transactions. MDR is levied at the time of purchase, and paid to the bank.
Following demonetization, the government waived MDR at fuel stations till 31 December to encourage cashless transactions. However, when banks demanded MDR in January, the All India Petroleum Dealers’ Association and Consortium of India Petroleum Dealers refused to pay and threatened to discontinue card transactions.
The government stepped in at that time and brought fuel retailers, dealers and banks to the table.
Emails sent to Indian Oil, Bharat Petroleum and Hindustan Petroleum on Friday went unanswered.
For OMCs, the burden of MDR comes on top of a 0.75% discount for purchase of auto fuel using credit and debit cards and e-wallets. The discount came into effect on 13 December 2016.
“MDR would be borne only on debit cards as on credit cards, the customer is already enjoying a 30-40 day credit period and in addition to a 0.75% discount. So, over and above this twin benefit, we thought that people who can afford a credit card would not mind a 0.25% to 1% charge on payments,” said the second of the officials cited earlier.
OMCs said as of now, they plan to bear the charges only up to 31 March, as per directives from the Reserve Bank of India.
They have, however, not decided if they would approach the government seeking compensation for the revenue losses incurred due to the discounts offered.
“The discounts would certainly dent our revenues but in the larger interest of promoting digitization, we have to do this. However, we have not yet decided on when to reach out to the government for compensation if any,” said the first official cited above.
In December 2016, OMCs told Mint that the discounts could dent the revenue by around Rs1,100 crore till March. OMCs do not see the discount period getting extended as effects of demonetization has eased.
The oil marketing business, including fuel retailing, forms 18% of volumes for Indian Oil and 40-50% for Bharat Petroleum and Hindustan Petroleum. While diesel forms 70% of sales for to the commercial segment, petrol is largely sold to retail customers.
According to a 9 December report by Religare Institutional Research, OMCs would gain from the digital push. “Increased digital transactions would raise transparency and enforce automation of inventories at most of these outlets, raising efficiencies. These outlets are largely franchised to private owners; hence a bulk of the costs for installing digital point-of-sale machines would fall on the franchise owners rather than OMCs,” the report said.
It added that OMCs could comfortably pass on the cost to customers as they have been able to raise gross marketing margins in petrol and diesel from Re1 per litre to Rs2.6 per litre over the past three years.