Banks have benefited both in terms of garnering more deposits and lower cost of operations due to ATMs. But the benefits of such improvement in earnings of banks have not been passed on to the banks’ customers

The security of banks’ customers who venture to draw cash from automated teller machines (ATMs) has been the talk of the town in the wake of a brutal attack on a lady manager of Corporation Bank in an ATM booth in Bangalore recently. The three concrete reasons why such an attack on a hapless woman took place are the following:

1. The banks have been systematically withdrawing security guards in most of their ATMs to save on cost of maintaining ATMs, which helped these monsters to attack the customers of banks during non-busy hours in those ATMs where security guards are absent. 
    
2. Most of the ATMs do not have the system of regulating the entry into the ATM booth through the use of ATM cards. These cards were used for unlocking the doors of the booths, so that entry is restricted only to those holding valid ATM cards. But this system is not prevalent now in most of the ATM kiosks, making it possible for a non-card holder to easily enter the ATM booth and play mischief either with the people inside or even with the ATM machine itself. 
    
3. We do not have a system of locking the shutters after pulling it up, so that no miscreant can pull the shutters down and play havoc with the person inside the ATM booth. This is what happened in Bangalore as the attack on a lonely woman took place in broad day light, as the culprit pulled down the shutters from inside, so that the crime was not visible to outsiders. 

As on 31 March, 2013, there were 1.14 lakh ATMs throughout the country, and a lot more are planned to be set up not only by banks, but even by the private finance and non-finance companies, as RBI has permitted couple of corporates to set up what are called ‘white-label’ ATMs not owned by banks, but owned and operated by private companies with tie-up with banks
 

How do the ATMs operate in India?
 

Here are a few important details about the functioning of ATMs in our country. In addition to dispensing of cash, ATMs may have provision to provide services like account information, regular bills payment, recharging of mobiles, balance enquiry and mini statements, and even loan account enquiry etc.
 

Almost all the ATMs in the country are part of National Financial Switch (NFS) network of National Payment Corporation of India (NPCI), which facilitates routing of ATM transactions through inter-connectivity between the banks’ systems, thereby enabling ATM/ debit cardholders of the country to utilise the services in any ATM of a connected bank. Therefore, the cards issued by banks in India may be used to withdraw cash at any bank’s ATM within India.
 

Nearly 200 million transactions are processed every month in NFS, of which 75% are cash withdrawal transactions with an average ticket size of Rs3,300. The balance 25% transactions are non-financial transactions.
 

Besides cash withdrawal and balance inquiry transactions, NFS supports other Value Added Services (VAS) such as pin change and mini statement through the ATMs. There are plans to increase the VAS through card-to-card transfer, cheque book request and statement request through the ATMs.
 

Is withdrawing the free usage of ATM facility, enjoyed by customers, justified?
 

In the aftermath of the aforesaid incident, police in various states have given instructions to all banks to provide security guards round the clock with CCTV cameras both inside and outside at all the ATM kiosks with immediate effect. But bank officials have expressed a view that having armed guards for all ATMs round the clock, installing cameras inside and outside the ATM and connecting alarms to the nearest police station as required by police authorities will have huge cost implications necessitating recovery of these costs from customers who use ATMs.
 

Following these instructions from the police, there are media reports that to make good the expenses incurred on beefing up security, banks are considering levying a charge on all ATM transactions, be it a cash withdrawal or a balance enquiry. Is this justified?
 

For whose benefit, ATMs are installed?
 

If you ask a question as to who has benefited most by the introduction of ATMs, the banks would say, without batting an eyelid, that it is the customer who has benefited most by having access to his account for withdrawing cash 24 hours, 7 days a week, through out the length and breadth of the country. But does it mean that the banks have not benefited at all by setting up ATMs? If the banks have not benefited and if it has only added to their costs, why are banks falling head over heels to set up more and more ATMs, more so the private sector banks that are conscious of costs more than the PSU banks. If one goes deeper into the rational for spreading ATMs far and wide, it is the banks that have equally, if not more, benefited for the following reasons:

1. There is keen competition among banks to mobilise Current and Savings accounts (CASA), as they are the cheapest form of deposits for banks. The main reason for banks to open more and more branches in smaller towns and villages is to attract more customers, who will keep their surplus funds in these types of accounts. In fact, opening of a current or savings account with a bank is the beginning of a relationship with a bank and banks are vying with each other to get maximum number of these accounts to improve their low cost deposits, which help them to increase their net interest margins. But as setting up full fledged branches is expensive, cumbersome, and time consuming, banks resort to the cheapest and easiest way to reach out to people by setting up ATM kiosks, which attract people to open their account even if the branch of the bank is little far away from their place of residence, as operating the account becomes easier through nearby ATMs. So the main purpose of setting up ATMs is to attract people to open their accounts, and it has really benefited banks by getting cheap deposits in a cost effective way.
    
2. With a large number of ATMs being installed by banks, which are more than the brick and mortar branches, it has helped to considerably reduce pressure of work on the counters of bank branches, facilitating quick disposal of customers, lesser paper work and more time for staff to attend to other pressing jobs. This has resulted in bringing down the number of employees in each branch of a bank, saving considerable employee cost which is the second highest expenditure for any bank after interest cost.

The aforesaid facts are evidenced by the following tables:

Table –1

Table – 2

If you analyse the above figures for the 10-year period from 2002 to 2012, the following conclusions are obvious:

1. The CASA deposits have grown by 467% in terms of amount and 146% in terms of number of accounts.
    
2. The corresponding growth in number of employees is only 13 % in respect of clerical staff and 30 % in respect of all employees.
    
3. The perceptible reduction in growth percentage in number of employees is partly due to introduction of core banking technology in banks and partly because of expansion in delivery channels through ATMs, which are now considerably more than the brick and mortar branches.
    
4. All ATMs are unmanned self-service kiosks, which do not require large deployment of human resources, which is a distinct advantage for banks resulting in huge savings in employee cost as stated above.
    
5. The much lower growth in clerical staff (at 13%) is a concrete evidence of the fact that due to the large introduction of ATMs, there is much less pressure on the counters of banks, which are normally manned by clerical staff.

Have the benefits of lower of cost of banking operations been passed on to customers?
 

It is, therefore, clear that the banks have benefited both in terms of garnering more CASA deposits and lower cost of operations due to the introduction of ATMs during the last more than 10 years. But the benefits of such distinct improvement in earnings of banks have not been passed on to the banks’ customers as bank charges have been continuously going up year after year on some pretext or other.   
 

Banks are increasingly adopting new technologies, but they have failed to bring down transaction costs, said Reserve Bank of India, deputy governor while speaking at a banking conference organized by the Indian Banks Association some time in September, 2010.  He had even said that technology must enable customer facilitation in terms of cost, time and convenience and it should be dovetailed to customer needs and expectations.
 

Read: Technology has failed to reduce banking transaction costs, says RBI – Moneylife dated 09.09.2010

As far as the bank customers are concerned all that matters (ATM) to them is that their personal security is ensured and safety of their hard earned savings is guaranteed without any additional cost to them, as it is squarely the responsibility of the banks, who own the ATMs, to provide a level of security needed to protect its users and their funds at all times. There is certainly no case for banks to curtail the existing facilities available to ATM users, as it will only negate the very objective of financial inclusion and expansion of banking facilities through ATMs to unbanked areas of our country.
                                                          

(The author is a banking analyst and he writes for Moneylife under the pen-name ‘Gurpur’ )