Indian banks ATM outlay to hit $1bn by FY06

Mumbai, Nov 15 | Updated: Nov 16 2005, 05:54am hrs
Indian banks investment in automated teller machines(ATMs), currently pegged at nearly $500 - 700 million till date, is slated to touch $1 billion by the end of the fiscal, given their focus on network expansion. In this context, ATM availability becomes an important issue for banks' return on investment.

Consider this: an ATM machine typically costs between Rs 5 to 7 lakh, depending upon the functions, brand etc. With most banks announcing their intention to ramp up the network by 500-1,000 ATMs by the end of the financial year, a key element in ensuring the return of investment is possible by an increase in the number of footfalls - in other words - increasing the number of customers using this channel for banking.

"In this regard, ATM downtime is of growing concern to banks as it can significantly impact profitability and customer satisfaction," said NCR Corporation, India's managing director, Deepak Chandnani.

For example, if an ATM is not available for transactions more than two or three times, a customer simply moves to another ATM for his transaction.

"Often, this is another bank's ATM in the same area. This has, in some cases, translated into a shift in customer loyalty, a very expensive loss for any bank today," said a senior banker.

Take the instance of a private sector bank which has an ATM network of about a 1,000 ATMs, and sees an average of 300 transactions per day per ATM. Every 1% downtime means that the ATM is not operating for 14.4 minutes per day. An average of 6-7 cash transactions (withdrawals) can be done in that amount of time. Calculate this on a monthly basis and see the loss that a bank can as a result of that downtime.

"The issue would get more critical as networks grow to accommodate increasing consumer demand for ATMs," said Mr Chnadnani. Conversely, an increase of 1% uptime in availability of the ATM, which typically sees 300 transactions per day, translates into an additional 36,000 transactions per month.

However, the maximum uptime that a bank can ensure on its ATM is 97.5% (in the case of banks whose ATMs see more footfalls). The 2.5% downtime is as a result of cash refills, site and ATM maintenance, peripherals refurbishment such as re-loading of paper rolls, etc. In cachement areas, these processes may be done just before peak hours, that is more than a couple of times a day, which increases the downtime. For banks, the challenge lies in ensuring availability of the ATM at the time the customer needs it!