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Last Updated : Nov 22, 2018 03:07 PM IST | Source: Moneycontrol.com

ATM shutdown fears trigger operational cost vs consumer convenience debate

Cash withdrawals are rising despite a decline in ATM addition. This brings to the fore fears of a cash-crisis-like situation

Beena Parmar @BeenaParmar

Even as digital payments are on the rise, Mumbai-based computer science professional Viren Darji says ATMs are required. "I use internet and mobile banking, but for a lot of day to day payments while commuting or roadside payments, or at shops, I would need cash...If 50 percent ATMs close down, it will lead to a situation similar to demonetisation."

Mira Sagar, a homemaker, says, "People will start stacking up money at home with the fear of not getting money at ATMs."

Like Viren and Mira, many others are using ATMs often for their immediate payments and fear many repercussions.

Close

The fears surfaced after the Confederation of ATM Industry (CATMi) warned on November 21 that new compliance and operating costs may lead to closure of more than half of the ATMs by March next year.

Interestingly, even as withdrawals have grown, there is a decline in the addition of new ATMs.

Issues

The ATM industry body said that the recently mandated compliance costs by the Reserve Bank of India (RBI) and the low interchange fee of Rs 15 a transaction could force closure of approximately 100,000 off-site and a little over 15,000 white-label automated teller machines (ATMs), or 50 percent of the installed base of 238,000 units.

"We have been fighting for the increase in interchange fee from Rs 15 to Rs 18 for financial transactions and from Rs 5 to Rs 8 for non-financial transactions. The costs are increasing and with the RBI mandate to upgrade, the costs will hike by over 50 percent. So maintaining the ATMs become unaffordable and we have no option but to close down," Sanjeev President of CATMi told Moneycontrol.

Patel is also the Chief Executive Officer and Managing Director at Tata Communications Payment Solutions, a white label ATM operator.

The interchange fee is paid by the customer's bank to the bank whose ATM has been used.

At present, a debit card customer of large banks gets eight free transactions (five at own bank ATMs and three at non-bank ATMs).

Cash king again, post demonetisation

Cash withdrawals from ATMs fell sharply during the demonetisation exercise, hitting Rs 1.06 lakh crore in December 2016. However, with cash coming back in the system, ATM withdrawals have also picked up.

As per RBI data, cash withdrawals from ATMs grew 8 percent to Rs 2.75 lakh crore in August 2018, up from Rs 2.54 lakh crore in October 2016. According to data from the RBI, the amount of currency in circulation rose to Rs 19.6 lakh crore as on October 26, 2018, a 9.5 percent growth from two years ago.

The currency in circulation was Rs 17.9 lakh crore on November 4, 2016, the week before the note ban came into force.

Fewer machines

At the same time, the addition of ATMs has been slow. In the last two years, about 8,000-odd ATMs had been added. There are 205,665 ATMs in the country as of August 2018. This number has since come down from 206,254 July 2018, RBI data showed. This number has been steadily declining from 207,052 as of the end of March 2018, as compared to 208,354 on March 2017.

Rising ATM operating costs

New regulatory requirements require banks to upgrade their ATMs. Banks deal with two types of ATMs — one being their own machines and the second type, which belongs to vendor.

According to ATM service providers, the costs will rise by over 50 percent.

The recent RBI regulatory guidelines for hardware and software upgrades, mandates on cash management standards, and the cassette-swap method of loading cash, are posing to be additional costs for operating an ATM, which the industry says, is unaffordable.

In April, the RBI had mandated a minimum net worth of Rs 100 crore for service providers and their sub-contractors handling cash management logistics on behalf of banks.

The central bank also directed cash vans transporting money to have CCTVs, GPS connectivity, tubeless tyres, security guards, hooters and wireless communication systems.

Another official of CATMi said they have been writing and having discussions for the past at least five years with the RBI and National Payments Corporation of India (NPCI) which decides the interchange fee.

"Nothing concrete has come out of the discussions. Most public sector bank customers enjoy services of ATM opened by private and large public sector players and hence they are resisting to bear any costs," the official said.

A senior banker with a public sector bank said, "We are already burdened with lot of costs, there is no mandate on us to pay for the upgrades. We pay a fee to the service provider and it is for the ATM providers to bear the costs."

The Indian Banks’ Association (IBA) had also requested the RBI to relax norms or extend the deadline for cash management, but it remained firm on its original mandates.

As they await intervention from either the regulator, NPCI or the finance ministry, CATMi said the 50 percent shutdown of ATMs can affect mwny jobs and beneficiaries under the Pradhan Mantri Jan Dhan Yojana who withdraw subsidies in the form of cash through ATMs.

In all of this, consumers are now a confused lot. Viren only hopes that lack of ATMs will be made up by better infrastructure and connectivity on the digital channels.

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First Published on Nov 22, 2018 12:24 pm
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