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...