The Reserve Bank of India (RBI) has formed a committee of six members to review the current structures, ATM interchange fees and cost patterns in the banking sector. V G Kannan, who is the Chief Executive of the Indian Banks’ Association, is heading the committee. According to official sources, the committee is expected to submit its reports within 60 days from the date of the 1st meeting.
Both white-label ATM operators (WLAOs) and banks are asking the RBI to increase the ATM interchange fees to Rs 18 from the current Rs 15 for fund transfers and money withdrawal and to Rs 8 from the current Rs 5 for non-financial services. The card-issuing bank pays an interchange fee when you transact at an ATM. As of 31st March 2019, the total number of ATM deployments was reported to be down by 544 triggered by the stringent regulations of the RBI.
While ATM operators are expecting a hike in ATM interchange fees to manage the increased operating costs, a few banks are still opposing the move. Customers have to bear the extra costs if there is a hike in the fees.
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Industry veterans are glad on the RBI’s initiative to review the existing ATM interchange fees. They are supporting this move citing several reasons. ATM interchange fees have to be increased to offset the high operating expenses and promote ATM services in India. Banks and white-label ATM operators will deploy more ATMs, thereby extending ATM services, especially in rural areas and tier II-IV cities. ATMs are very important for financial institutions in India, with an increasing population. They add value to the business of banking in several ways.
Banks have been consistently investing in order to secure ATM networks and upgrade the operating systems. Moreover, the ATM interchange fees have not been revised over the last few years. Banks can decide the number of free transactions they would like to provide, while the regulator determines the maximum cap. Triggered by the unbalanced overheads of administering the channel and the low incentives provided to ATM service providers, the per capita ATM coverage is very low in India. Over the last 20 months, the number of ATMs increased by just 2%. During the same period, 120 million new cards have been issued by banks. Considering these points, increasing ATM interchange fees is inevitable.
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For both operators and banks, the overheads of administering the ATMs are expected to go up. This is because of the RBI circular on the system of cash loading at ATMs and the recent regulatory frameworks imposed by the Ministry of Home Affairs.
In the previous monetary policy, it was announced that all ATM machines were required to be grouted (firmly clipped) to a floor or a wall to tighten the security. Undoubtedly, this is expensive. If this proposal is implemented, the feasibility of managing and running ATM networks is really tough. For someone who is managing a wide network of ATMs, increasing ATM interchange fee is advantageous.
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Cash recyclers are considered as a viable alternative for banks which are struggling to upgrade their ATM services in sync with stringent regulations. With new norms in place, the cost of operating an ATM has gone up by 8-10% according to reliable sources. The interchange fee for cash recyclers is quite low. In fact, several public sector banks are now planning to replace ATMs with cash recyclers to enhance operational efficiency. State Bank of India, which is one of the biggest public sector banks in India, recently proposed to install 5,000 cash recyclers, (This is as per a report released on 4th January 2019).
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