Savings bank account holders are walking around with a long face these days. Weighed down by rising prices and stagnant salaries, they now have an additional headache to bear. Henceforth, they will not have the convenience of walking across to the friendly neighbourhood ATM (automated teller machine) to draw money for free more than five times a month.
Those living in Mumbai, Delhi, Kolkata, Chennai, Bangalore and Hyderabad will have the convenience of only three transactions in a month if they were to use an ATM
belonging to a bank where they don’t hold an account. For transactions over these limits, including balance confirmation and PIN change, the bank will levy a fee on them.
The Reserve Bank of India (RBI) had in August allowed banks to levy such fees and it also set the limits for the number of free transactions terming it ‘rationalisation’. And banks have been quick to revise their charges once the RBI deadline of November 1 was crossed. Every transaction over the permitted limit will now cost Rs.20 plus service tax. Some banks charge half this for balance confirmation and PIN change.
HDFC Bank and Axis Bank have already intimated the new charges to their customers which will kick in from December 1, as have IOB and SBI which has adopted a nuanced stance on this issue. SBI customers, who hold more than Rs.25,000 in their SB accounts, will not be constrained by limits which will apply only to those holding less than that amount in their accounts. Other banks are either in the process of finalising their policy.
The RBI had to act after repeated representation from banks which have been complaining of the transaction costs that they have to bear every time a customer swipes his card in an ATM. In the process, it overturned its own earlier policy on this as set out in a March 2008 circular that expounded on the benefits of transacting through an ATM. This particular circular spoke about how in countries such as the U.K., Germany and France customers could access all ATMs, except white-label ones, free of charge.
“The ideal situation is that a customer should be able to access any ATM installed in the country free of charge through an equitable cooperative initiative by banks,” the circular dated March 10, 2008 had said while asking banks to allow unlimited free transactions at ATMs in India.
In contrast, the central bank now talks about “the growing cost of ATM deployment and maintenance” for banks. And what is that cost? It ranges between Rs.18 and Rs.25 per transaction, say banks.
These developments are ironic indeed considering that ATM growth really took off in the last few years after the RBI made transactions free of charges. As per latest RBI data, there are an estimated 1.6 lakh ATMs in the country which is almost six times the 27,000 ATMs that India had in March 2007.
Banks expanded their ATM networks rapidly to draw in customers and also drive them away from the branches; servicing simple requests such as withdrawals and balance confirmation at branches was estimated to be more expensive than through ATMs.
According to one private bank, servicing a customer at the branch costs Rs.40 per transaction. Indeed, some private banks, and well-known ones at that, imposed a fee on customers who visited their branches for transacting more than a specified number of times in a given period. The aim was to reduce footfalls in the branch and run a lean operation. Having achieved that objective and hooking customers to ATMs, how is it fair to now impose a limit on free transactions?
For their part, the banks say that the aim is to increase non-cash transactions and drive people into digital banking. A digital, cash-free economy is a laudable objective indeed but achieving that involves many simultaneous steps. The RBI and banks would like people to use their debit/credit cards more, even for minor transactions at the grocer or the chemist as it happens abroad. Yet, the truth is that many small merchant establishments with point of sale (POS) machines charge customers anything up to 2.5 per cent as transaction fee when it is paid by card.
In fact, banks charge an additional fee when their cards are used at petrol bunks. Such fees and surcharges defeat the objective of pushing people into using their cards more. Banks also need to spread the reach of POSs. In the last seven years, the number of POSs in the country trebled to 10.65 lakh from 3.2 lakh, according to the RBI. This is commendable but we need greater reach into smaller establishments.
Students and senior citizens, who prefer drawing small sums at frequent intervals for reasons of convenience and safety, are likely to be affected the most by the new ATM rule.
While students may find it easier to adapt to the new norms, the same cannot be said of senior citizens. Again, customers in the cities may be better placed to move to digital banking but the same cannot be said of those in rural and semi-urban centres, at least not yet.
Digital banking yet to spread
Poor internet penetration, including inadequate bandwidth, power cuts and low literacy levels are factors that work against the spread of digital banking in rural areas.
Though financial inclusion account holders are exempt from the ATM rule, it needs to be pointed out that not all rural account holders fall in this category.
Changing banking habits is a slow process and that needs to be recognised by banks and the RBI. A gradual transition to digital banking would have been the ideal thing to do in a country of India’s size and complexity. Till such time that the ecosystem for digital banking and card payments improve a more relaxed ATM usage policy is probably necessary.
