An online petition requesting Reserve Bank of India (RBI) governor Dr Raghuram Rajan to direct banks to increase number of free transactions and limits on cash withdrawal at automatic teller machines (ATMs) has got a huge response. As on 25 July 2016, the petition, started by Satej Neelavar about two months ago, was signed by over 1.05 lakh people.
In the petition hosted at Change.org
, Neelavar says, "Every transaction after the free transaction limit is charged at Rs20 per transaction. The concept of metro and non-metro transactions makes it even worse. We do not have the option of using ATM cards everywhere. A lot of transactions are made in cash, and we need to draw cash from ATMs for this. Charging customers so much is ridiculous.”
This particular petition talks about a charge of Rs700 for withdrawals and it is not clear whether they were from the petitioners own bank or from ATMs of other banks. However, the larger issue is one which Moneylife Foundation too had taken up with the RBI. The Foundation submitted two memorandums to RBI protesting against its attempts to penalise savers. The first was in February 2013 on its plan to “Dis-incentivise Cheque Usage” through punitive levies and charges; the second was in January 2014 against the move to restrict usage. Both have been ignored in favour of bankers’ lobby. (see the Memorandums
The Moneylife Foundation memorandum stated, "The setting up of ATMs by banks is to reduce not only the pressure on their counters, but also to reduce cost of operations through automation. By levying charges for use of ATMs beyond a certain number, banks are scuttling the optimum utilization of technology, thus depriving the benefits of technology to bank customers."
Replying to this, the central bank said, "...in order to ensure that customers are not unduly inconvenienced, we have mandated a certain number of transactions to be provided free of charges and have also prescribed the maximum fee that the bank may decide to levy, as per its Board approved policy."
However, there is no justification forthcoming either from RBI or the banks. A majority of customers only need basic banking services, which, by the banks' own definition, includes ATM services. In fact, no-frills accounts permit only ATM transactions. However, banks now claim that ATM charges are also too high and low-value transactions are lossmaking, without explaining or proving that drawing money from the bank branch is less expensive than drawing money electronically. For example, for banks it would be more costly to allow customers withdraw money at their branch, than using ATM, considering the limitation in banking hours, and manpower.
According to RBI data, as on March 2016, there were nearly two lakh ATMs (including on-site and off-site) installed by banks across the country. Out of this 53,523 ATMs are installed in metros, 57,569 in urban areas, 53,476 in semi-urban and 34,384 in rural areas.
Moneylife Foundation also shared customer feedback that they were forced to use private bank ATMs because those of their banks often did not work. The Foundation even offered to create a phone-based app to report such incidents. There was no response from the RBI on this initiative.
A few days back, SS Mundra, the Deputy Governor of RBI said that the central bank surveyed 4,000 ATMs across the country and found that a third of them were not working at that point of time. Here, again, he makes no mention about penalties for this or a rollback of charges that are being extracted from consumers.
Earlier, there were no charges for using own bank ATM for transactions. However, on 14 August 2014, the RBI issued a very anti-consumer directive restricting the free usage of ATMs despite protests by consumer organisations and depositors. In response to feedback and a memorandum from Moneylife Foundation on why these charges are unfair, the RBI ignored all the issues raised on behalf of consumers except the one about non-functioning ATMs.
Moneylife Foundation had pointed out that there is no system in our country to report non-functioning and 'out of order’ ATMs that we as customers see almost every time we want to use it. This makes people to hop around and use other bank's ATM that is working. Another crucial issue is the restriction on money withdrawal. If someone needs, let’s say Rs25,000, but the ATM has withdrawal limit of Rs10,000. In this case, the person would end up making all three permitted transactions there only.
Under the new rules, bank customers are entitled to five free ATM transactions at own bank and these would include non-financial transactions to check account balance or ask for a chequebook. Further, anything beyond three transactions at another bank’s ATM located in six metros (Mumbai, Delhi, Bengaluru, Chennai, Hyderabad and Kolkata) will be charged Rs20 per transaction. Those in smaller towns and holders of no-frills accounts will continue to have five free transactions.
RBI's former Deputy Governor and Moneylife Foundation's Trustee, Dr KC Chakraborty had said at that time, “It is ridiculous that banks are charging customers for withdrawing money and that too from their own ATMs—it never happens anywhere.”
Nowhere in the world are customers charged for withdrawing money from their own accounts, while the bank earns revenue on their deposits. Banks provide this service to customers because of the spread that they earn between the interest paid to depositors and the rate at which they lend money. The spread has to cover transaction charges.
If banks want to start charging on transaction basis, then the spread that they earn on depositors money has to come down. The transaction charges are all the more illogical because in India, the spread on savings bank is one of the highest in the world. In fact, in India, even generally, spread is one of the highest. So in India, banks cannot charge for transactions. But then the bank customers are not organised like the banks’ own cartel and thus get penalised for withdrawing own money.
Some private banks have gone a step further and introduced an account management charge on the grounds that a few basic services are being provided free of cost; others argue that these charges are not levied to premium customers with large deposits. Neither the RBI nor the banks will address the fact that the Indian banking industry enjoys a huge float on customers’ funds maintained in savings banks at 4% while lending rates are upward of 9%.