Technology can be a friend, or a very ruthless enemy. It took just a few SMS-es for panic to spread across large parts of Gujarat, and even Mumbai, when rumours started doing the rounds about a non-existent crisis in ICICI Bank, the country?s second largest banking institution. Several depositors rushed to their automated teller machines (ATMs) to withdraw money in panic. Timely action and strong regulatory support took care of the crisis just in time. But the scars of those two days remain, and have shaken up the banking system. Today, quite a few banks, particularly those in the private sector, are working on tackling such risks if they are ever to occur again.
ICICI Bank, for instance, is putting in place a detailed plan to have currency chests at critical locations so that funds can be moved quickly and easily if there is an immediate need. Ditto for UTI Bank which had been working on such a plan even before the ICICI Bank episode took place. The problem, as ICICI Bank CEO KV Kamath had described it, was essentially one of logistics, and needed to be viewed in that perspective. UTI Bank, for instance, has also set up an informal internal group to come up with solutions to tackle crises of this sort.
The best brains in the private sector banks are currently working out possible solutions to ensure that the banking system as a whole is not endangered like it could have been, had the ICICI Bank crisis snowballed. With ATMs now a part of everyday life, access to funds has to be ensured anytime, anywhere, by most banks if they are to survive the dog-eat-dog competition in the banking sector. A private sector bank chairman recently told me that an overwhelming proportion of his bank?s cash transactions now take place over the ATMs. More and more banks, from the public sector behemoths to the private sector ones, are busy putting up widespread ATM infrastructure. In such a scenario, risk mitigation measures for the banks assume great importance. In this context, bankers have begun suggesting that private sector banks work out lines of credit with their public sector counterparts, so that even if a crisis arises, there is a funds support back-up from another group of banks which is unaffected by the crisis
The critical issue which is engaging the attention of most bankers these days is ATM-sharing. This too can become a major risk-mitigation measure, and will help bring down the transaction costs significantly and enhance usage. Essentially, a shared ATM network will mean the getting together of a clutch of banks, with a common switch, where any bank?s ATM card can be used to access his funds from any of the ATMs in that group of banks. For instance, if I have a Bank X ATM card, it should not matter to me which ATM I go to (that of Bank Y, Z or P). I can access my money from any of the ATMs which are part of that shared ATM network. This also spreads the risk effectively and ensures customers have easy access to their money at low cost. Some banks, however, are still holding on to a proprietary ATM model (meaning they don?t want to share their networks with others), little realising that would only expose them to greater risks. Ultimately, ATMs should, like the money they serve, become ?fungible?. Technology allows that today, and customer demand will ensure it becomes a reality in India soon.
Consider some interesting statistics. A whopping 90 per cent of customers aged between 16 and 34 use ATMs to withdraw cash in the United Kingdom. With customers in India having tasted blood through these machines, it won?t be long before India throws up similar figures. Preparing for the ATM boom, most banks are drawing up large plans to put their ATM infrastructures in place. State Bank of India targets 3,500 ATMs, UTI Bank 2,000, ICICI Bank 3,000 and HDFC Bank 2,000. The infrastructure will be ready.
And available. It?s now time for consolidation between banks ? cutting across ownership ? to get their machines to talk to each other so that customers can access their money without conditions. The writing is on the wall. Or, maybe more aptly, on the ATM screens.