The Reserve Bank of India (RBI) has finally responded to customers being wrongly fleeced by banks and clarified that transactions that have failed due to technical reasons, or when there is no cash withdrawals at automated teller machine (ATM) cannot be counted as valid and bank cannot charge customers for them.
In
a notification, RBI says , "...transactions which fail on account of technical reasons like hardware, software, communication issues; non-availability of currency notes in the ATM; and other declines ascribable directly or wholly to the bank or service provider; and invalid PIN or validations will not be counted as valid ATM transactions for the customer. Consequently, no charges therefor should be levied."
"Non-cash withdrawal transactions such as balance enquiry, cheque book request, payment of taxes, and funds transfer, which constitute ‘on-us’ transactions or when a card is used at an ATM of the bank, which has issued the card, shall also not be part of the number of free ATM transactions," the central bank says.
This means that only successful transactions at the ATM would be counted as valid and would be free, as applicable or charged as per the issuer bank policy. It is however shocking that banks have been charging for such transactions for such a long time. In fact, in response to a specific query from Moneylife, Bank of Baroda’s CEO had clarified that no failed transactions were charged by the banks. Hence, it would be interesting to know which banks had charged for the transactions, how much money was collected against such failed transactions or when no cash was withdrawn and whether RBI is in any position to calculate these amounts.
The RBI notification is silent on withdrawal limits at ATMs imposed by banks. For example, a
savings bank account holder of State Bank of India (SBI) can withdraw maximum of Rs20,000 per transaction using her classic debit card. HDFC Bank allows maximum cash withdrawals of Rs25,000 to Rs1 lakh depending upon the type of card and account. Similarly, ICICI Bank also allows maximum cash withdrawal of Rs50,000 to Rs1.50 lakh as per the type of account.
In most cases, if the customer is using ATM of other than her issuer bank then the maximum cash withdrawal limits comes down to half. This in other words mean, a customer of SBI, who is using ICICI Bank ATM would have to consume two transactions to withdraw Rs20,000. However, the latest RBI circular is silent on this limit.
Almost every bank customer has faced this situation while making transaction at any ATM. However, despite the transaction remaining incomplete due to technical reasons, banks used to count it as valid transaction. Since every bank has placed a limit for certain numbers of free transactions at ATMs, once this number is crossed, customers were being charged additional fee per transaction. Banks were considering each transaction, whether successful or failed as valid transaction to levy charges.
With the RBI's new notification bank customers would be charged only for successful transactions (cash withdrawal) at any ATM. For non-cash transactions at own bank ATMs, there would be no charges.
ATM charges and poor service is only a part of the problem of bank’s attitude to customers and their various charges. Banks have been found charging even for failed card transactions or for transactions declined due to insufficient funds. This is applicable not just for ATMs but also for point of sale (PoS) transactions. If there is insufficient balance in the account due to which the transaction is declined, then banks were levying a charge of Rs17 to Rs25, plus goods and service tax (GST).
In June this year, the central bank had proposed a review of ATM interchange fee structure. A certain number of transactions from non-issuing bank’s ATM are allowed by the issuing bank but on exceeding a limit, all further transactions are charged. Such charges differ from one issuing bank to another. Those in smaller towns and holders of no-frills accounts will continue to have five free transactions.
At present, banks offers three number of free transactions, including financial and non-financial, in metro and non-metro locations. Afterwards, the charges stand at Rs20 plus GST for financial transaction and Rs8 plus GST for non-financial transaction.
RBI, as usual keep saying that banks are free to decide or offer more number of free transactions per month at own or other bank ATMs in any geographical area.
Concerned with rising and arbitrary bank charges, Moneylife Foundation had sent multiple memorandums to the RBI governors. One of 9 September 2014 was on “
Usage of ATMs-Rationalisation of number of free transactions” sent to the then governor Dr Raghuram Rajan, 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."
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.
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