How transactions at ATMs become expensive: Explained

Written by fe Bureau | New Delhi | Updated: Aug 19 2014, 20:21pm hrs
Atm usage Taking out a mini-statement or even changing PIN will amount to a transaction.
COME November, frequent usage of ATMs will become expensive, with the RBI imposing a limit of three transactions financial and non-financial per month from ATMs of other banks and five from the same bank in the six metropolitan cities. You will be required to pay a fee of up to R20 for using ATMs beyond the permitted numbers of transactions in Delhi, Mumbai, Chennai, Bangalore, Kolkata and Hyderabad.

Taking out a mini-statement or even changing your PIN will amount to a transaction. The central bank has, however, said that nothing precludes a bank from offering more than three free transactions at other bank ATMs to its account holders if it so desires.

Recently, a few banks and the Indian Banks Association (IBA) had approached RBI seeking changes in the extant instructions regarding free transactions at other banks' ATMs. Referring to the growing cost of ATM deployment and maintenance incurred by banks, on one hand, and the rising interchange outgo due to these free transactions (on the other), the IBA had sought the removal of free transactions at other banks' ATMs at metro centres and other townships in the country," said the RBI circular.

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The central bank has also asked banks to ensure fair and transparent information to customers regarding the new ATM charges and put in place a proper mechanism to track transactions.

ATMs have gained prominence as a delivery channel for banking transactions in India. The number of ATMs increased to over 1.67 lakh in June 2014 from 27,000 in March 2007. During the period, the point-of-sale infrastructure increased from 3.2 lakh to 10.89 lakh terminals. ATMs are being leveraged by banks to deliver financial and non-financial products to customers. Access to third-party ATMs was made free in April 2009. However, following a representation from banks, RBI agreed to cap the number of free withdrawals to five a month and limited the total cash withdrawal to R10,000 from third-party ATMs.

Now, for every transaction that a customer makes at another banks ATM, the home bank pays an

interchange fee of R18 per transaction for use of its machines. Currently, banks are not allowed to charge their own customers for use of the ATM network, regardless of the number of transactions. Bankers say each balance enquiry costs the bank R11, while a transaction costs around R18. ATMs are more concentrated in urban areas as people often tend to misuse third-party ATM transaction.

Analysts say the volume of non-financial transactions will drop sharply once the charges are introduced, with customers shifting to other mediums. ATM usage rose sharply after the central bank directed banks in 2008 not to charge their own customers for use of ATMs. After the new rates and cap are put in place, bankers feel they can start recovering a significant part of the cost for running and maintenance of ATMs.

Various estimates suggest that, on an average, a bank incurs a cost of R10-12 for every transaction in an ATM and around R35-40 for every transaction in a branch. Bankers say their cost of operating ATMs has increased as they have to provide round-the-clock security cover at each and every ATM.

Data from IMFs Financial Access Survey show the number of ATMs per one lakh adults increased to 11.21 in 2012 from just 5.31 in 2009. However, ATM penetration in India is far below that of China where it is 37.5 ATMs per one lakh adults. In the UK, Germany and France, bank customers have access to all ATMs in the country for free except when cash is withdrawn from white label ATMs or from ATMs managed by non-bank entities.

At present, urban and metropolitan centres account for over 65% of the total number of ATMs in the country. However, there has been a rising trend in the share of ATMs located in rural and semi-urban centres in the last few years. The central bank's report on Trend and Progress of Banking in India 2012-13 shows that offsite ATMs are becoming more cost-efficient as they operate without the paraphernalia of a bank branch. The relative growth in offsite ATMs has been much more than that of onsite ATMs, with the former accounting for more than half of the total ATMs in the country. Moreover, to improve the delivery of customer services, the central bank has made it mandatory for banks to place a quarterly review of ATM transactions to their board of directors. The review will have to outline, among other things, the denial of services to the customers at ATM sites and reasons and the action taken thereof to avoid recurrence of such instances.

Cash withdrawal charges at other banks ATMs

* At present, banks dont charge for services at their own ATMs. Up to five transactions at other bank ATMs are free

* Taking out a mini-statement or even changing PIN will amount to a transaction

This is what banks charge for over five cash transactions at other banks ATMs. (Transactions/month for SB accounts)

Bank (Rs per transaction)

SBI: 17

PNB: 20

Bank of Baroda: 20

UCO Bank: 20

IDBI Bank: 20

Axis Bank: 20

ICICI Bank: 20

HDFC Bank: 20

Kotak Bank: 17.8