All such cash to bank account remittances and cash out transactions in rural locations, irrespective of account type should be exempted from GST. Urban customers pay nil fee as NEFT & UPI is free, however rural poor end up paying such high GST on remittance charges.
The current COVID-19 pandemic has caused huge disruption in global economies. India, in particular, has a bigger economic impact, as it was trying to deal with situation facing the financial services industry post ILFS, PMC, Yes Bank events, when COVID-19 hit India in March 2020. The impact is greater financially, as India has perhaps the largest percentage of unorganized labour force globally. As per a survey carried out by the National Sample Survey Organisation (NSSO) in 2009–10, the total employment in the country was of 46.5 crore comprising around 2.8 crore in the organised and the remaining 43.7 crore workers in the unorganised sector. Out of these workers in the unorganised sector, there are 24.6 crore workers employed in the agricultural sector, about 4.4 crore in construction work and remaining in manufacturing and service.
Suddenly this workforce has no work no money. Government acted quickly and put forward a program of Rs 1.75 lakh crore of disbursement which started reaching beneficiaries bank account thanks for JAM (Jan-Dhan-Aadhaar-Mobile) trinity. Up to here, all was well. The problem starts from here. Money has reached bank accounts, but the country has 155,000 Bank branches and 210,000 ATMs as on Dec 2019. Of these ATMs, about 113,000 ATMs are “On-Site” ATMs (ATM that are housed with-in a Bank Branch Premise) and only 97,000 ATMs are “Off-Site” ATMs (ATMs that are located away from Bank premises). This actually also shows that not all 155,000 bank branches in the country have an ATM in the same premise. An estimated 75,000 “Off-Site” ATMs are in Metro/Class-A/Class-B cities, leaving 22,000 ATMs among 6 lakh villages housing 833 Million population as per Census 2011.
The total transactions done on these ATMs in January 2020 month are total 66.7 Crore transactions worth Rs 3.2 Lakh Crore. This translates into 3200 transactions per ATM per month and cash value worth Rs 1.5 Crore per ATM per month. Looking at this number, one can assume that Rs 1.75 lakh Crore can be easily withdrawn from these ATMs, but the spread of only 22,000 ATMs in 6 lakh villages assumes dire need for alternative solution, as bulk of these Rs 1.75 lakh crore is going to rural India.
Looking at costs of ATM, it costs anywhere between Rs 3 Lakh to Rs 5 Lakhs* (depending upon the capacity/features) as capital expenditure for ATM which only dispenses cash and does not accept cash. Cash Recyclers that accept as well as dispense cash cost even higher and are significantly smaller in numbers in terms of deployments. On top of ATM capital costs are operating costs like security (24 x 7), Airconditioning, site rental and internet, which can cost anywhere between Rs 40,000 to 75,000* per month depending upon the location.
The revenue for ATM is “ATM Interchange” on what is called “Off-Us” transaction, i.e. customer of Bank A going to ATM of Bank-B, when an ATM Interchange pay out of Rs 15 is given by Bank-A for using its customers an ATM of Bank-B, as all ATMs are inter-operable. Typically in an urban/semi-urban environment, for large banks like SBI/HDFC/Axis/ICICI Bank, about 50%* can be “Off-Us” with balance being bank’s own customers where no revenue accrues to Bank on ATM transactions. But it reduces overall cost to bank, as the customers do not visit bank branch for cash withdrawal, where costs are even higher. Looking at this, with average 3200 transaction per ATM, Off transaction will be 1600 giving revenue of Rs 24,000 per month per ATM. Even with 90% Off Us Transactions, as is the case with many new age private banks, the revenue realization is only Rs 43,000 per month per ATM on these ATMs.
Clearly only select locations in Urban/Semi-Urban areas will far exceed this average ATM transaction value, which will make ATM a viable proposition. Rest all location ATM deployment is loss making for banks and is one of the main reasons for ATM population not growing beyond 210,000+ odd number for quite some time. Large banks business model, therefore, does not rest of ATM cost economics, but overall banking with customers preferring to keep their savings/current account with banks who have better ATM access.
Is there a way out for solving this problem in rural India? Bank-Mitra or Agent Business Correspondent (BC) to Banks who are extension of bank branches to select transactions. Bank-Mitra were set up starting 2005 with issuance of first RBI guidelines for BCs and there are now estimated 600,000-800,000 Bank-Mitras*. The real revolution came in 2016 when NPCI rolled out an interoperable cash-in/cash-out system for BCs using Aadhaar called AEPS (Aadhaar Enabled Payments System). It allowed Bank Mitra with MicroATM (a card swipe machine with biometric or simple Android Mobile with USB connected Biometric) could carry out ATM transactions and provide cash to customer. This followed by full ATM card functionality on MicroATM made Bank-Mitra the savior for villagers who had to earlier travel 20-30 km to access ATM/Bank branches to withdraw small amount of cash (Rs 2000-5000) that gets credited to their bank account as part of government benefit payment program.
However, looking at current crisis, the current Bank Mitra need to, not only be made viable but also there needs to be a compelling business case to expand current strength to at least 15 lakh Bank Mitra in a hurry, as given in the table below:
Clearly, a focused program is required from government to make this happen. Looking at the challenge, following are the steps that can be taken to push Bank Mitra with a viable business model to serve customers not only in current Covid-19 crisis but also as a regular service in future:
- Taking business case of ATM above, Bank Mitra are provided cost disbursement of Rs 2000 per month for cash out transaction of 150 per month, Rs 5000 per month for cash out transaction of 300 per month and Rs 7000 per month for cash out transaction of 500 per month and above. This is funded by government via agencies like NABARD
- Although Jan Dhan Account transactions in villages have GST exemption, implementation of the same has been a challenge. On top of that cash remittance from urban migrant to his account in rural, GST is imposed which is 27%, as Banks do not get full GST credit and load the cost of transaction. All such cash to bank account remittances and cash out transactions in rural locations, irrespective of account type should be exempted from GST. Urban customers pay nil fee as NEFT & UPI is free, however rural poor end up paying such high GST on remittance charges.
(By Sunil Kulkarni, Chief Business Mentor, Board Member BCFI | Oxigen Services India Private Limited; and Anand Kumar Bajaj, Board Member BCFI | MD & CEO PayNearby)