Recently Reserve Bank of India – the central bank of the country came with the circular titled Usage of ATMs – Rationalisation of number of free transactions ( RBI/2014-2015/179
DPSS.CO.PD.No. 316/02.10.002/2014-2015
 ). The circular brings to the notice of the banks and bank customers the earlier circulars issued on March 11, 2008 and May 27, 2011 regarding the  levy of service charges for use of ATMs and number of free transactions per month respectively  and the changes made to them.

As per new circular the RBI has allowed banks to reduce the number of free transactions on other bank’s ATM from five to three (including non-financial transaction) in Metro Cities viz. Mumbai, New Delhi, Chennai, Kolkata, Bengaluru and Hyderabad. The RBI has also given the liberty to bank to levy charges beyond five free transactions (inclusive of financial and non financial transactions) per month on own-bank ATMs and the ceiling / cap on customer charges has been fixed at Rs.20/- per transaction (plus service tax, if any)

The reason cited by the few banks and the Indian Banks’ Association (IBA)  to push for these changes is growing cost of ATM deployment and maintenance incurred by banks as well as the rising interchange out-go due to these free transactions.

I agree that there are charges associated with interbank transaction as customers have increasingly started withdrawing the money from other bank ATMs thus increasing the cost of the bank for maintaining the cash in these ATMs. The reason cited is also valid that other banks with less of their own ATM infrastructure are benefitted with number of free transaction with no motive for them to expand their own ATM network.

But the second policy on allowing bank to levy charges beyond five free transactions on own-bank ATMs is definitely a wrong step. The reason of rising cost cited by bank though may be true should not be a reason to allow this. On one hand the bank encourages the customers to visit less of branches and do more transactions online using ATM or Internet Banking, on the other hand they are pushing for less customer friendly policies. The organizations which were setup to benefit the customers are now trying to wear a capitalist outfit who want to maximize their profits through every means. The balance sheet and income statement of none of the banks gives indication of declining profits. Whatever negative assets which are pulling their profits down to some extent are the rising NPAs for which bank is itself responsible for not doing the necessary due-diligence.

One Point worth noticing is that the ATM density is still quite less in India compared to other nations. For example taking a case for Karnataka State which has an area of 191791 Sq. Km has total ATMs in the region as 12585 as per the RBI List. (http://www.rbi.org.in/scripts/StateRegionATMView.aspx) Taking only 40% as the inhabited area as an assumption where population lives ATM density comes out to be 164.01 per 1000 Sq. Km which amounts to only 1.64 ATM per 10 Sq. Km and this calculation is based on the ATMs of all the banks combined together and we can expect the number to be much lower if individual bank ATM network is considered. Thus it is not clear on what basis the bank can be allowed to levy charges and limit number of transaction if the ATM density is so less.

Moreover one should understand that India is largely a cash based economy with most of the transaction happening in cash irrespective of metro or non-metro nature of the city. By succumbing to the pressure of few banks and bringing the wrong policies, RBI is setting up the wrong example which is highly discouraged. In fact we are taking one step back then moving forward.

I hope RBI takes the right steps in favor of the customers and not agree to the unjustified demands of the banks.

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