Will free usage of ATMs be a thing of the past?

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

For all banks:

31 March 2002

31 March 2012

Growth in %

Staff Strength : in Nos.

 

 

 

Officers

276,368

502,938

82 %

Clerks

425,788

481,421

13 %

Subordinates

199,132

190,790

- 4 %

Total staff

901,288

1,175,149

30 %

                                

Table – 2

 

31 March 2001

31 March 2012

Growth in %

Business

No of A/cs   (in crore)

Amount in  Rs lakh crore

No of A/cs (in crore)

Amount in   Rs lakh crore

No of A/cs (in crore)

Amount

Deposits

43

11.23

90.32

60.78

110%

441%

of which CASA

29.98

3.98

73.9

22.58

146%

467%

Advances

-

6.09

-

48.03

-

688%

Total Business

-

17.32

-

108.8

-

528%


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’ )

  • Like this story? Get our top stories by email.

    User

    COMMENTS

    sankar

    6 years ago

    While banks are interested in charging the customers, they have not done anything so far in respect of guidelines issued by RBI regarding freeing interest rate on savings deposit. On one hand, they continue giving lower rates of interest and on the other they would like to impose charges !!!

    Any move to charge ATM transactions will dissuade the customers to keep minimum idle cash and perhaps force them to draw bulk which would increase the cost of currency and at the same time reduce CASA for the banks. RBI may have to keep this in mind before agreeing to banks' requests.

    Gopalakrishnan T V

    6 years ago

    Banks are reported to be seeking RBI's approval to enhance the ATM Charges.In this context it may please be nopted that there is absolutely no justification for banks to approach RBI to hike the ATM charges.The banks enjoy a lot of free float funds, low cost /free funds from SB and Current account holders and they also save a lot in the cost of funds by having ATMs. The technology was encouraged basically to improve the customer service at lower costs, to reduce the cost of funds and enhance efficiency and productivity in banks. The banks have a tendency to exploit the depositors by all means as they are hapless lots and not capable of giving any resistance. The borrowers are allowed to loot merrily and the loss is also passed on to depositors. RBI has to have a serious view of banks inefficient way of functioning before it takes a view in respect of ATM Charges.

    Sumeet R Nayak

    6 years ago

    Excellent article, as mentioned if the three concrete reason for the attack are looked into i.e. do not withdraw security to cut cost, regulate entry to those who have cards and ensure the shutters are locked there is no need to charge fees to customers at all.

    arun adalja

    6 years ago

    due to atm transactions workload on banks reduced drastically and employees are enjoying due to less work and botheration.

    Veeresh Malik

    6 years ago

    Solutions have to be out-of-the-box and include meeting half-way. For example:-

    # In return for all the free of cost police protection that banks get, they should pay rent to police stations and put up ATMs in the main entry room, reception area, nothing should be safer that that as a location on an all-India basis, especially rural and inaccesible areas.

    # All ATMs do not have to be 24x7 - double shift 0600-2200 is more than enough for most locations unless well-trafficked like airports, railway stations, bus terminals, near call-centres working 24x7, and similar.

    # Provision of "silent alarm" facility by some method should be included in all ATMs as well as a specific RBI provided reference number for other issues.

    At the end of the day, if I have to start paying for ATM usage, then I will start going back to the branch - and that will cost them more.

    Humbly submitted.

    REPLY

    nagesh kini

    In Reply to Veeresh Malik 6 years ago

    Veeresh had provided essential inputs to Mr. Gutrpur's well researched main article.
    Both should be implemented by the RBI as early as possible.
    My experience is that ATMs are essentially a great boon to the off brick-n-brick banking with greatly diminished foot falls and/or customers' visits for cash witdrawal, utilities/credit card payments allthat would have otherwise necessitated interfacing with bank staff and at times exchange of harsh words. Some foreign banks even debit walk-in customers because they believe they waste time!
    There is no justification whatsoever for the pro[posal to levy charges or restrict the numbers of cash withdrawals because the banks are saved a lot of botheration of processing of cheques, issuing of token and manually disbursing cash.
    Because of the presence of the ATMs the banks definitely save large sums on manpower deployment and this is all the more reason why they put in place more efficient security measures.
    Incidently the Bengaluru assailtant is yet to be apprehended despite the CCTV.
    A revisit of the entire security apparatus is called for and implemented on top priority basis.

    Canara Bank cuts fixed deposit rates by 100 bps

    Canara Bank has cut its interest rate on fixed deposit on maturities of 61-90 days to 7.75% from 8.75%

    State-run Canara Bank on Tuesday reduced its fixed deposit (FD) rates by up to 100 basis points (bps) or 1% on select maturities.

     

    Canara Bank has cut its interest rate by 1% on maturities of 61-90 days to 7.75% from 8.75%. For maturities of 91-120 days, the new rate would be cut by 0.5% to 8.50%, while for 121-179 days, the FD rate has been reduced by 0.25% to 8.75%, the lender said in a statement.

     

    Besides, FDs of one-two years would now earn 9% compared with 9.1% earlier.

     

    On 29th October, Reserve Bank of India (RBI) had raised the repo rate by 0.25% in its monetary policy review making the cost of fund expensive for banks.

     

    Following the central bank’s move, some banks including Punjab National Bank and Canara Bank raised the interest rates in some maturity brackets by 25-50 basis points.

     

    State Bank of India and HDFC Bank had raised their base rate or the minimum lending rate by 0.2% to 10%.

  • User

    COMMENTS

    Karthik

    2 years ago

    Same problem here in Tamil nadu most of the fair price shops are actually not intersted in showing the actual prices which was released by the tnpds online in tamil nadu. Corruption in ration card is all around in tamil nadu.

    Are privileged bank customers getting more benefits?

    The benefits of privilege banking remain a mere eye-wash, as privileged banking services are hardly availed, as they matter little to privileged banking customers

    The new private banks (or private banking) are seen to accord the special privileged/preferred/Imperia customers status to their few in number super rich/high or ultra-high networth individual customers. Privileged banking is essentially based on the volume and size of their balances in savings bank accounts and extent of the amounts placed in term deposits e.g. Axis Bank requires minimum Rs1 lakh in savings bank or ICICI Bank for salary accounts with a monthly credit of Rs50,000 or more or a home loan between Rs40 lakh – Rs1 crore.
     

    A series of benefits of private banking or privileged banking are being given to a select few rich and at the same time simply denying them even in a lesser degree to the lakhs of aam janata.  Small time savings bank (SB) and fixed deposit (FD) customers who have chosen to voluntarily safe keep their hard-earned savings essentially in any bank nearer to home. This is done for the ease of drawing upon them on demand in case of dire need or emergency without any elaborate paper work and delays.
     

    Most of the so-called extra/special benefits that are sought to be extended by private banks to this handful lot of super-rich so-called ‘privileged customers’, who hardly ever seen to set foot into private bank branch portals, more often than not they are seen to leave bank visits to the secretary or chauffer. Consequently, the benefits remain a mere eye-wash, as they are seen to be hardly availed of by many as they matter little to them.
     

    What are these private banking benefits?
     

    • Priority in allotment of safe deposit lockers and in the choice of the size
    • Lower locker rentals
    • Some banks are said to be offering round-the-clock locker facilities with air conditioned  mirrored changing room at tony down town areas of Mumbai like Cuffe Parade, Malabar Hill and Bandra-Kurla Complex (BKC)
    • Reduced charges and enhanced limits on credit and debit cards
    • Forex, internet banking and ATM withdrawals and bill payments
    • Bank travel and gift cards
    • Accounts and differently coloured cheque leaves prominently displaying “Privilege Customer” tag that becomes status symbols
    • They have less waiting during branch visits
    • Free pick-up for cash and cheques to be deposited as well as home delivery of cash withdrawals
    • No charges for cheque return or stop payment or signature verifications
    • Especially dedicated relationship managers who keep on calling customers phone or cell to sell mutual fund, insurance or gold even when it is made amply clear not to pestered or reminded
    • Differently designed and coloured cheque leaves distinguishing them from the other customers
       

    The hard truth is that most of the ultra-high networth individuals (HNIs) are too rich to hardly pay any visit to the private bank branches; perhaps many may not even be aware of the exact location!  Unless and until one frequently visits the bank on puts through physical transactions they have very little to gain in their privilege status. Most of them being tech-savvy do carry out most of their transactions online through internet banking or have staff to do their running about.
     

    These privileged or private banking customers do not require or avail of the kaal-ka-baccha bank relationship mangers, parroting blah-blahs claiming to be ‘investment advisors.’ that they are not. These marketing gimmicks only serve to massage the egos of the few super rich customers. Most have on their own retainer highly qualified financial planners and advisors.
     

    There was a time when elders/senior citizens were beneficiaries of additional +1% in interest on FDs, it now stands reduced to a mere +0.5%. This ought to be restored by extending it to all deposits – FD and recurring deposits too. The bulk deposits discretionary higher rate cap also should be restored to the earlier Rs15 lakhs from the now increased Rs1 crore. 
     

    Common sense demands, on the contrary, that the benefits ought to have been first and foremost extended to the lakhs of small customers, the elders, widows, pensioners and housewives who have been loyally maintaining dedicated accounts with just one bank branch for decades at a stretch.   These savings accounts aggregating to crores constitute over 14.5% of the total low interest bearing deposits that the banks earn fabulously by advancing to borrowers at higher rates. Denying them the benefits is patently discriminatory.
     

    (Nagesh Kini is a Mumbai-based chartered accountant turned activist.)

  • Like this story? Get our top stories by email.

    User

    COMMENTS

    Yerram Raju Behara

    6 years ago

    Privy purses gone but the privileged class remains. Banks are more system centric than customer centric. The privileges that the author narrated are for those who transact through net for as is made out and confirmed by the users that these privileged class of customers hardly have time to visit the bank branch. There is a rush for CASA deposits as the banks are forced to compete with other financial products when it comes to FDs.
    Excepting the reduced 0.5% additional interest on FDs, the senior citizens have no seniority anywhere in treatment. Earlier, there used to be a lounge where after presenting his/her token he/she can sit and browse through news papers or magazines until his/her turn comes. Now he has to wait in the que. A few empathisers now and then extend the privilege to the senior citizens.

    Satya

    6 years ago

    Most of the bank customers who are opting these Privileged accounts are feeling status symbol of having a priority or patina or privilege account. They do have separate counters / lobby / relationship managers there by special care is being taken care. However opting for other facilities is not to the full extent

    Deepak Sholapurkar

    6 years ago

    Good Article, "Privileged Customer" is a synonym for selling the waste products like ULIP's etc through there RM's.

    When ever I asked about required things like Lockers RM's never replied but they were always there to call and try to sell Insurance/investment products.

    sanjay

    6 years ago

    Sometimes I feel that the banks intentionally bracket customers so that their RM's get a Ready bunch of customers whom they can target .. for selling their Schemes & products which are beneficial for the banks & the RM's Annual bonuses

    bhaskar

    6 years ago

    Awesome article. My blood boils whenever i visit airports and see Jet Airlines operating many booths for their "privileged" customers while there are only a few check-in counters with long queues, for us lesser mortals.

    They should have some decency and take over some of the common public passengers in times of heavy traffic. We will understand if any "privilege" customer comes and he is taken to the front of the queue.

    REPLY

    nagesh kini

    In Reply to bhaskar 6 years ago

    Bhasker - what's your take on Shashi Tharoor "Cattle class" remark for the Economy Class flyers?
    The Executive and First Class are only there for the moneyed CIPs Commercially Important Persons and netas and top babus!

    Mrinal Thakkar

    In Reply to bhaskar 6 years ago

    Bhaskarji,

    In my opinion , the privilege system in Banking works in a completely diffrent way than the one in Airlines.

    Airlines have privilege counters for their loyal customers who repeatedly fly on the same airline. In this case , we can also opine why Jet Airways allows Economy "Privilege" Card passengers to check in at Business class counters,isn't this a disadvantage for the people who pay nearly 5 times more to travel on Business/First Class.

    In banking however, the Bank and its products are same across the board , the only diffrentiation being the AQB/AMB that customers maintain. the POV in the article in that why are the loyal people of the Bank(who have lower AQB/AMB) being suffered because some wealthy HNI walks in(who may not even use services) and RMs want their money at any cost.

    i myself being a priority customer know how pushy these RMs are...these people sell FMPs to senior citizen(in this case my uncle) at 9.66% estimate whereas a PSU gives him 9.75%p.a on an FD. i mean whats the point taking the risk

    sanjay

    6 years ago

    Dear nagesh,

    You have hit the nail on the head by your well researched article on these " Priority customers ". Being one myself, I hardly visit the branch and generlly my assistants go to the branch whenever required though it is quite seldom . most of the work is done online now adays ...

    Mrinal Thakkar

    6 years ago

    On the Dot Article

    We are listening!

    Solve the equation and enter in the Captcha field.
      Loading...
    Close

    To continue


    Please
    Sign Up or Sign In
    with

    Email
    Close

    To continue


    Please
    Sign Up or Sign In
    with

    Email

    BUY NOW

    online financial advisory
    Pathbreakers
    Pathbreakers 1 & Pathbreakers 2 contain deep insights, unknown facts and captivating events in the life of 51 top achievers, in their own words.
    online financia advisory
    The Scam
    24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
    Moneylife Online Magazine
    Fiercely independent and pro-consumer information on personal finance
    financial magazines online
    Stockletters in 3 Flavours
    Outstanding research that beats mutual funds year after year
    financial magazines in india
    MAS: Complete Online Financial Advisory
    (Includes Moneylife Online Magazine)