ATM withdrawals

Come November 1  2014, and you will be counting the number of times you have withdrawn money from the Automated Teller Machines (ATMs). For, regular withdrawal of money from ATMs is going to cost you money.

The Reserve Bank of India has imposed a limit of five transactions from the ATM of the bank where you hold your account and three transactions from any other bank, free. Earlier, instead of three transactions in another bank, you could do five.

When we say transaction, it does not mean only cash withdrawals but also includes checking balance enquiries, requesting for cheque books or re-charging the mobile phones.

This RBI guideline is applicable to only six metro cities – Delhi, Mumbai, Chennai, Bangalore, Kolkata and Hyderabad.
The RBI has also allowed the banks to charge a maximum fee of INR 20 per transaction beyond the specified transactions.

Why was this step taken by the RBI?

It is believed that this step is the outcome of the hard lobbying that the banks, especially the state banks, had indulged in. In an interaction with the RBI, the Indian Bank Association and some other banks had conveyed their concerns about the transactions that were given for free at other banks’ ATMs.

They had complained that they were incurring high costs by way of deploying and maintaining the ATMs, and also by way of the interchange outgo costs incurred due to free transactions that are constantly on the rise. Hence, the banks had sought the removal of free transactions altogether. Earlier, the banks had a concern that people were withdrawing cash in small amounts, which is leading to frequent refills at the ATMs. Taking all the points into consideration, the RBI decided to curb the number of ATM transactions. This move is also intended to reduce unnecessary transactions and curb the costs that the banks are bearing.

A look at how banks incur costs

For every transaction at an ATM, the bank incurs some costs. When you are withdrawing money from another ATM, there are two banks involved. Each of these banks stands to incur costs. The bank where you have your account will charge you a nominal fee for the transaction, while the bank from whose ATM you are withdrawing cash will charge your bank an inter-bank fee. Hence, you are charged a fee so that your bank can absorb the inter-bank fee that it will be charged. If we look at the charges, for every transaction done at an ATM other than yours, your bank is charged INR 18 per transaction and a balance inquiry would cost your bank about INR 11. Currently people are not being charged by the banks for the use of ATM networks.

What does this ATM curb mean to customers?

This means that people would either head to a bank for a transaction or pay a maximum of INR 20 for a transaction in an ATM, after they have exhausted their transaction limit at the ATM. Where people have got used to running to the ATM every time they need money, this would come as a jolt. Many see it as a very unfriendly move.

A few years ago, the RBI had allowed people to withdraw money from any ATM free of cost. But it soon had to roll this decision back when the banks began complaining that they were incurring lot of costs in the process.

Why this ATM curb may not serve the purpose?

As seen, the main intent of this curb is to save banks the costs. By restricting people from using the ATMs, the people are actually being sent back to the banks for transactions after they have completed using their transaction limit at the ATM.

Let us now look at the costs incurred by the bank when a person does a transaction. In today’s scenario when the person visits the branch for a transaction, the bank is likely to incur a cost of INR 50, which is many times more than what the ATM would have cost. Then, shouldn’t a cap be imposed here as well?

There are currently 1.6 lakh ATMs in the county, out of which 70 percent belongs to the public sector banks. When people are pushed to the banks for transactions, will these banks, especially the public sector banks, have enough manpower to tackle the surge in demand? They are already grappling with shortage of manpower, where many have retired and many more are on the verge of retiring.

In this digital era, when one is looking forward to accomplishing everything through machines, will the people be happy going back to the bank? And will the banks be happy incurring more costs by serving the people?


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