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

    8 months 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 8 months 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

    8 months 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

    8 months 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

    8 months 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

    8 months 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

    8 months ago

    Very Regressive move . Where will we ever become digital

    yerramr

    8 months 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

    8 months 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

    8 months 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

    8 months 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

    8 months 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 8 months ago

    Sharp observation.

    FRANCISXAVIER

    8 months 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?

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