RBI Committee Recommends Hike in ATM Charges; Limit Cash Withdrawals to Rs5,000 per Transaction
A committee appointed by the Reserve Bank of India (RBI), headed by chief executive of Indian Banks’ Association (IBA) and consisting of representatives from all stakeholders, except bank customers, has recommended an increase in interchange charges for all transactions carried out on automated teller machines (ATMs) across the country. The committee also wants to cap cash withdrawal limit at Rs5,000 per transaction and levy charges for any larger amount. In fact, the committee’s report was also kept out of public domain by RBI, till Hyderabad-based techie Srikanth L filed an appeal under the Right to Information (RTI) Act to get a copy of the report. But more about it later. 
 
As announced in its monetary policy announcement of 6 June 2019, RBI appointed a committee headed by VG Kannan, chief executive (CEO) of Indian Banks' Association (IBA), to review the ATM interchange fee structure. While the committee had submitted its report, it is not known if RBI has accepted these recommendations.
 
For transactions at ATMs in all centres with a population of one million and above, the committee has recommended an increase of 16% or Rs2 to Rs17 from Rs15 for financial transactions and to Rs7 from Rs5 for non-financial transactions. For usage of ATMs in all other centres with a population of less than one million, the committee recommends charges to be increased to 24% on a blended basis. The charges would be increased by Rs3 to Rs18 from Rs15 for financial transactions and to Rs8 from Rs5 for non-financial transactions. 
 
The committee says, "While the recommended changes as above in interchange do not cover the complete cost per transaction, it is felt that given the asymmetry in acquiring and issuing transaction volumes, a via media needs to be arrived at between issuing banks and acquiring banks. Hence an ATM interchange increase to cover the full costs of running an ATM is not recommended. Increased transaction volumes are expected to offset the difference in cost per transaction and weighted average interchange recommended. Further, the White Label ATMs (WLAs) also should make efforts to increase the number of transactions at their ATMs which will bring unit costs down." 
 
Other members in the committee were Dilip Asbe, CEO of National Payments Corp of India (NPCI), Giri Kumar Nair, chief general manager of State Bank of India (SBI), S Sampath Kumar, group head for liability products at HDFC Bank, K Srinivas, director of Confederation of ATM Industry and Sanjeev Patel, CEO of Tata Communications Payment Solutions Ltd.
 
Bank customers have no representation in this committee as well, as it has become the norm with RBI to ignore and neglect the last person who uses and pays for all banking services including ATM charges.
 
 
Several years ago, banks were permitted by RBI to set up ATMs as extended delivery channels. In 2012, RBI decided to permit non-bank entities or white label ATM operators (WLAOs) to set up, own and operate ATMs in India.
 
The investments in ATMs have been leveraged for delivery of a wide variety of banking services to customers across the banking industry and have expanded the scope of banking to anytime, anywhere banking through interoperable platforms provided by the authorised shared ATM network operators and card payment network operators.
 
Use of ATMs by the bank customers has been growing significantly. However, RBI says, "from the past three years, new ATM deployments have been more or less stagnant due to the ever increasing cost of operating ATMs and there have been no changes in ATM usage charges and interchange fee."
 
There is persistent demand from the stakeholders to review the ATM charges and interchange.
 
Then, in its monetary policy announcement in June last year, the central bank decided to appoint this committee to review the ATM interchange fee structure. 
 
Given that the cost of operating ATMs has gone up whereas the interchange fees and the cap on customer ATM usage charges has not been reviewed since 2012 and 2008 respectively, the committee recommended increasing interchange charges as well as increasing the number of free transactions to six from five in areas with a population of less than 1 million. 
 
The committee also recommended considering cash withdrawals of up to Rs5,000 as free transaction and levy charges for every transaction above this value.
 
In addition, the Kannan committee recommends increasing the upper limit for charging customers for financial transactions, over and above the free transactions allowed, by 20% to Rs24 from Rs20 per transaction, excluding taxes. 
 
The Kannan committee says, "After some normalisation, average monthly cost of operating an ATM is estimated to be in the range of Rs75,000 to Rs80,000 per ATM, excluding cassette swap. The blended estimated cost (financial and non-financial transactions both together in ratio of 75:25) per transaction at 120 average financial transactions per ATM per day comes in the range of Rs15.60 to Rs16.70 and at 130 average financial transactions it comes in the range of Rs14.50 to Rs15.40. This is against the existing blended interchange rate of Rs12.50 (Rs15 for financial and Rs5 for non-financial). The cost per transaction for WLAOs is higher as their hits per day per ATM are low compared to bank ATMs. The cost of operating ATMs per month may further rise by about 15%, if cassette swap is implemented."
 
While suggesting an increase in ATM charges, the committee itself states how cost effective the ATMs are compared with the in-branch transactions. "If the increase in the number of ATMs is not commensurate with the increase in number of debit cards to fulfil basic banking needs of the customers, banks may have high footfalls at the branches. The cost of serving the customer at a branch especially for cash transactions is substantially high as compared to per transaction cost at the ATM. Banks should consider the cost saved on the branch over-the-counter (OTC) transactions and also the cost of setting up of branches, if usage of ATMs and other alternate channels are not increased.
 
Due to the convenience of usage of ATMs the number of withdrawal transactions at ATMs per customer is higher as compared to that at the branch, hence the comparison of a cost of single ATM transactions with single branch transaction may not be appropriate," it says.
 
The number of debit cards issued has grown substantially, outpacing the growth of ATMs in the last three years. With a greater number of people accessing bank accounts, especially due to various financial inclusion initiatives including the Pradhan Mantri Jan-Dhan Yojana (PMJDY) and direct benefit transfers (DBT), there is an urgent need to increase the number of ATMs, the committee says.
 
ATMs play an important role for customers to access funds in their account anywhere and anytime of the day. This gives them the confidence to keep monies in their bank accounts rather than holding cash, as they would have the ability to withdraw cash from ATMs, anytime they need. Now, with many value-added services (VAS) being offered through ATMs, it has become like an extension centre of a bank branch where customers can fulfil their basic banking needs and also can avail various other services.
 
 
However, irrespective of directions from RBI, there are several ATMs that are still running on old software or operative systems (OS). This increases the risk of frauds taking place at such ATMs, which causes financial loss to the customer. The Kannan committee says, "With reference to control measures for the ATMs, RBI had estimated a cost of around Rs701 crore for upgrading ATMs with the OS of Windows XP. There are still about 38,350 ATMs with unsupported versions of software."
 
Presently, ATMs are mainly seen as a channel for dispensing cash, though they can be leveraged for multiple other purposes. More than 900 million monthly transactions on ATMs clearly highlights the strong customer acceptance of ATMs across geographies and town classes. With the help of advanced technology, ATMs can be used for additional banking services selectively and can enhance customer experience, the Kannan committee says.
 
In fact, the committee mentions recommendations of the Nandan Nilekani committee on deepening of digital payments. The Nilekani committee has recommended exploration of options such as reimagining ATMs as an access point for customer education, awareness, and support. It recommends that features of ATMs should be enhanced merely from cash dispenser to support the gamut of banking facilities including cash deposit, bills payment, funds transfer, tax deposits, and mobile recharge in addition to customer support and grievance reporting, so as to act as a complete digital facilitation point. 
 
Coming back to the RTI, when Hyderabad-based Mr Shrikant had requested a copy of the committee report appointed by the RBI to review the ATM interchange fee structure, the central public information officer (CPIO) denied it citing fiduciary relations as the excuse. 
 
 
Shrikant went into appeal stating that the committee was appointed by RBI itself as part of the monetary policy announcement of 6 June 2019, and thus it cannot be said to possess the report under fiduciary relations. The appellate authority agreed to this and directed the CPIO to share a copy of the report. 
 
Here is the RTI appeal filed by Mr Shrikant and the Kannan committee report shared by RBI...
 
 
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    COMMENTS

    ashuannu61

    2 weeks ago

    The Kannan committee says, "With reference to control measures for the ATMs, RBI had estimated a cost of around Rs701 crore for upgrading ATMs with the OS of Windows XP. There are still about 38,350 ATMs with unsupported versions of software." Windows XP is already an out-dated OS, installing will take further time and by the time it's installed Windows may very well withdraw support & updates to it. where on earth are these Technocrats/Dinosaurs?

    REPLY

    kvrao42004

    In Reply to ashuannu61 2 weeks ago

    A very moot point. Attention:top management to note and take appropriate action. I suggest the commentator to take up with top management. Please address a suitable mail to RBI and at least some top banks. Also send copy to IBA representing all banks.


    ashuannu61

    2 weeks ago

    The Kannan committee says, "With reference to control measures for the ATMs, RBI had estimated a cost of around Rs701 crore for upgrading ATMs with the OS of Windows XP. There are still about 38,350 ATMs with unsupported versions of software."

    sachingalande0

    2 weeks ago

    This is utter nonsence..on one side they want us to go digital...and on other side they keep on in reasing charges on service...then why will people use this services..instead they ll go for old method....isnot it...and otherwise also..keeping money in bank now a days is big gamble

    shetyerb

    2 weeks ago

    Actually the BANKS should pay 2% more if people withdraw money from ATM. But for the ATMs, Bank would have been paying expensive Human Cashiers to pay the money to the Customers. Moreover it is the Customers' money anyway.

    homaielavia

    2 weeks ago

    Digitalisation ... we were sold this dream ... now we have to pay for our dreams ... What is Rs.5000 worth today. If I need Rs.20,000 towards monthly expenses, either I visit the ATM 4 times or withdraw Rs.5000 with 4 separate transactions at one time. Does this not put pressure on the ATM operation. What can be done at at one go has to be done 4 times over. If we have to pay to withdraw our own money, let the banks pay us a premium for each deposit made into our account. As it is, the interest on savings is down to 3%. Govt forced us into d-mat and today we are charged for the d-mat. Govt forced us to digitalise and today it wants us to pay a penalty for withdrawing our own hard earned money for our use. Let each on the RBI Committee explain their rationale for setting the 5000 limit other than making us pay a tax on each subsequent withdrawal. Why not be honest and just increase the overall income tax limit rather than charge tax on each and every small day to day item?

    vram2311

    2 weeks ago

    Very Regressive move . Where will we ever become digital

    yerramr

    2 weeks ago

    Everything in the Bank is viewed as a cost center in the Banks except the non-performers who because of their clean record - white paper- they rise to the top. Customers are not taken into confidence as they seem to feel that they are there everywhere and nowhere!!

    mantrisuresh1

    2 weeks ago

    The cost of JDY accounts and DBT operations which overload the ATMs are being squeezed out of hapless middle class who have no choice. Deposit money, pay tax, withdraw/use ATM , pay charges.

    rajubarkade

    2 weeks ago

    Also add penalty for Banks for not keeping sufficient cash in ATM.

    Don't put shamelessly any board in front of ATM as 'due to technical reason ATM is not working'

    Ramesh Popat

    2 weeks ago

    we should be ready for many such robbery in the time to come.
    fuel price hikes is one of them. every time common man is
    suffering!

    kvrao42004

    2 weeks ago

    Committee has recommended hike in charges to cover banks inefficiency. The tamasha is the person affected (read customer) is not represented in the committee. The entire phenomenon is one sided. Fit for PUBLIC INTEREST LITIGATION. The judiciary will definitely ask RBI for a review. This time the Kannan committee has further incorporated a cunning clause by restricting withdrawals to Rs5000. The amount by today's standards is quite low. Another withdrawal will attract additional fees. Mr. Kannan Sir, we know being an erstwhile public sector banker , you have vouched for protecting them. No surprise. How come you have totally ignored the customer? Of course your excuse is your briefing did not include customer. Now let us come to bank regulator (read RBI) . He will merely tinker the report by increasing the limit to Rs10000. Here and there does some minor changes. Another tamasha. The committee observes ATM is one of the popular modes of withdrawal and over a period of time transactions have increased by leaps and bounds. Why? Today you ask any typical customer as to why he prefers ATM. Answer is not ease of withdrawal. He or she doesn't want to see the face of bank employee. Even where the choice of denominations is not available, ATM is helplessly pursued.

    REPLY

    mywopy

    In Reply to kvrao42004 2 weeks ago

    Sharp observation.

    FRANCISXAVIER

    2 weeks ago

    why CDM (Cash Deposit Machine) should not replace 50% of ATM to reduce the refill cost? if a customer can withdraw from other bank ATM, why not deposit money to other bank CDM?

    SEBI allows promoters to increase stake by up to 10%
    Stock market regulator, Securities and Exchange Board of India (SEBI) has amended the takeover norms to allow promoters to increase their stake by up to 10 per cent through a preferential allotment.
     
    The move will give a boost to promoters wanting to increase their stake and enhance investor confidence as the promoter buying more shares is a good signal to shareholders.
     
    The amendment in the regulations allows a promoter owning 25 per cent or more voting rights in a company to increase shareholding by up to 10 per cent in a year versus the earlier limit of 5 per cent. This is valid only for the current financial year and is allowed for a preferential issue of equity shares.
     
    "SEBI relaxation on the creeping acquisition is a double whammy for promoters. They will not only be able to increase their stake but this will also build investor confidence." said Rajesh Thakkar, Partner & Leader/ Transaction Tax, Tax & Regulatory Services, BDO India.
     
    As per a notification, the amendments have been made to the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.
     
    These regulations may be called the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) (Amendment) Regulations, 2020.
     
    They shall come into force on the date of their publication in the official gazette. In the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, in regulation 3, in sub-regulation (2), the following new proviso shall be inserted before the existing provisions, namely - "Provided that the acquisition beyond five per cent but up to ten per cent of the voting rights in the target company shall be permitted for the financial year 2020-21 only in respect of acquisition by a promoter pursuant to preferential issue of equity shares by the target company."
     
    In regulation 6, in sub-regulation (1), the following shall be inserted after the first proviso, namely,- "The relaxation from the first proviso is granted till March 31, 2021."
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    Governance in Banks Back on the Drawing Board of RBI
    A strong financial sector is the foundation on which India’s emergence as a global player would rest. In due recognition of that, the very comprehensive "Discussion Paper on Governance in Banks" comes from the Reserve Bank of India (RBI) is a formidable effort to set the house in order and bring about the much-needed reforms in banks. Large balance sheets do not add much strength, nor report on good governance, as a reflect on just a one-day-in-a-year picture.
    There and is a broad realisation that a change in the mindset among bankers would come about neither by the diktats of the RBI nor by those of the bank’s owner, but rather, by internalising the best governance factors. Despite the excess liquidity pumped into the banks during the last six months, credit to the needy does not flow. Risk aversion needs reversal and this can happen with good, responsible and accountable governance.
     
    Increasing bank frauds, cybercrimes, arrest of some top executives and chairpersons of reputed banks like the ICICI, failures of PMC Bank, Times Bank, Yes Bank and several others in hiding, have obviously triggered the RBI into getting to the drawing board on governance. The paper has heavy referencing to the Basel Committee on Banking Supervision (BCBS), the Organisation for Economic Co-operation and Development OECD and the Ashok Ganguly Report, bringing back to the drawing board of the RBI its seriousness in action and not just intention. 
     
    Contextually, it is heartening to see that what I have been articulating since 1999: Corporate Governance in Banking & Finance (Tata-McGraw Hill, 2000 with YRK Reddy) and ‘A Saint in the Board Room’ (Konark Publishers: 2011) with R Durgadoss, finds an echo in the paper. Two decades of wait has been worth it.
     
    The government, going by the experience so far, considers that institutions created under its fold are holy cows and should, therefore, be protected at the cost of the exchequer. Hopefully, the GoI (Government of India) would embrace these governance reforms in public sector banks (PSBs) and hasten corrections with a sense of urgency.
     
    There is enough proof in India that regulation and bank supervision are interdependent and not of independent of governance in banks. Both have limitations with effective interplay among them. Viewed from this angle, the Discussion now specifies the key stakeholders’ role, distinguishes the role of the non-executive director from those of the independent director and the workmanship director.  
     
    A foundation is built for the whole house; there are not separate silos for the kitchen and the bedrooms. In the same way, audit, compliance and risk management should maintain their necessary independence — but not operate in three different silos. Governance is the binding force/material and it rests on the board. It helps all the three groups speak the same language and connect with business processes and products. 
     
    The Discussion Paper concentrates on the audit and risk processes as more proactive than reactive until now. Once the house is built, no one would like to go to the foundation to make changes. Therefore, change management is extremely crucial. Board cannot be expected to do the change management function. Change management requires federated ownership, to cite a Governance, Risk Management and Compliance Management (GRC) framework study.
     
    Two aspects are needed in order to trigger the actions mentioned in the discussion Paper , although experts in various fields are taken on bank boards. Knowledge cannot be taken as something given and permanent and it requires frequent updation.
     
    1. Directors should themselves be prepared for new responsibilities and new roles. In the first meeting of the board, the first item on the agenda should be the series of actions ordained in the Discussion Paper and their understanding in the present and emerging context. Each director may be asked to furnish upfront what he or she would like to contribute to the board and the objectives of the bank. This would be the board’s review point half-yearly and annually. Qualitative change will become possible through this measure.
     
    2. Half-yearly retreats for self-renewal of the board directors away from the traditional board meetings has the potential for a free and open discussion on the issues - both internal and external - to the organization. It is not a common practice to have a separate budget for board management. It is good to have a board approved budget for its own functioning and knowledge upgradation. Usually good directors will be on the learning curve and hence, wisdom lies in taking advantage of it. ‘Fresh thinking’ that the RBI advocated would be possible with such a measure.
     
    Even mega banks, measured by their balance sheets, suffer from issues that they would prefer to hide, and therein lies the danger. One of the leading large PSBs in its latest balance sheet has very low net interest earnings – not just due to low credit outflow but more due to gains in the reduction in the interest rate on deposits, for nine-times in a year! Depositors are minority stakeholders. The bank earned profit from sale of its stake in a subsidiary and not due to its core banking business where credit sale is poor and deposits rose despite and not because of its efforts. 
     
    RBI cannot be a gatekeeper of the banks. It can only direct the banks to take care of the interests with due concern for the economy and various other constituents. It is here that the whistle blower policy implementation becomes crucial. We have seen lackadaisical responses even to RTI (Right to Information) questions and resorting to the courts for seeking responses. Such an approach will work in the absence of transparency persons in responsibility are not held accountable.
     
    The Paper has fully accommodated the recent statement of the FM that the banks need not be afraid of the three ‘C’s – the Central Vigilance Commission (CVC), the Central Bureau of Investigation (CBI) and the Comptroller and Auditor General (CAG) as such references would be made only after fully exhausting internal examination and action. 
     
    While minority shareholders’ interest may be taken care of, depositors turning a minority stakeholder, would harm the interests of banks in the long run. The correction can come from governance and the RBI’s latest approach makes adequate mention of it in its paper. 
     
    It is also interesting to find that the RBI as regulator would divest its participatory role in the board. One hopes the government of India would not raise any objection on this issue. It has been noticed thus far that the value the RBI director imparted in the board disclosures has not been significant. 
     
    There is a thin line between the non-executive directors and independent directors and this subtlety has been well addressed in specifying their roles in the NRC committee and audit committee. Risk management committee chair to be directly responsible to the chairman is worthy of note. It has rightly identified risk appetite framework as crucial for the eventual risk measurement and management. Those who cannot risk prudently cannot get rewarded. It could have specified that non-performers, because of their clean slate, cannot be elevated to key management positions in the organisation and the Board would ensure this through its effective oversight. 
     
    While it has kept its banner line on culture and values, it could have also constituted an ethics committee with an outside expert nominee of the RBI to chair it and make it responsible to the chairman directly. Business ethics is an oxymoron and therefore, defining it is crucial in financial institutions. Measuring ethics has been templated by the writer in the book A Saint in the Board Room. Corporate executives can be subjected to this test while the board directors are supposed to be ethical, having the right values to uphold the organisational culture. The future tells it all. 
     
    (The author is an economist and risk management specialist. The views expressed are personal.)
     
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    COMMENTS

    yerramr

    3 weeks ago

    If everybody is a dishonest loanee, then the NPAs should be 100%. If every banker is honest in assessment and sells only loan products in time and to the requirement of the borrower without undue harassment and delay, repayments and not recoveries would come in. I am a hard core banker for 3 decades and I say this from experience . Most small borrowers whether farmers or MSMEs cannot afford the luxury of evading or avoiding the loan for he keeps needing debt to run his enterprise.
    Second, If one thinks that in a country like India, Rs.35lakhs is a poor pay just because a Bank like HDFC gets a few crores per annum, and with lots of perks for both, there must be a system to cut the salary of HDFC likes in the country. Remember, the huge salaries come out of the earnings of the Banks and not fall from heaven.

    rajoluramam

    3 weeks ago

    Why our bank's loan portfolio is failing? What are the reasons? The first and fundamental reason is
    " we lack basic honesty". Every body who takes loan from a pulic sector bank, tries to evade repayment, whether he is a small or big borrower. Small borrower thinks that, if it is a Government bank one need not repay and it will be subsequently waived. Big borrowers boost the loan requirement by 30 to 40% so that it covers his margin. Due to this, his personal stake in
    estblishing the industry. They try to squeeze as much as possible from the bank by appointing his own kith and kin on high salaries. The bankers are poorly paid and lured by small favours. SBI charman gets 38 lakhs monthly salary as against Rs 55 crores salary by HDFC boss!

    REPLY

    rajoluramam

    In Reply to rajoluramam 3 weeks ago

    Sorry! Itis yearly salary by SBI
    Chairman not monthly.

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