Friday, September 11

ATM Charges reintroduced - Customers suffer again


The celebrations of free ATM transactions from any bank in India was not even over that the RBI accepted the Indian Banks Association (IBA) proposal to re-introduce transaction charges for customers on the use of other banks’ ATM.

IBA has proposed to levy a transaction fee of Rs. 20 per transaction for using another bank's ATM more than five times a month. Also the Reserve Bank of India has said that not more than Rs 10,000 can be withdrawn each time they are used.

It will be optional on the part of the banks to levy this charge on customers. IBA has not made it mandatory but left it to the banks' discretion. Since the banks will recover the transaction costs it would have to pay to the bank providing the ATM services, it has less to lose. Once again, it’s the customers who lose.

ATMs have become an important channel for banking transactions, particularly for cash withdrawal and account balance enquiry and also funds transfer, bill payments and cell phone recharge facilities. The spread of ATMs has increased from 34,789 in March 2008 to 43,651 in March 2009. Banks have entered into bilateral or multilateral arrangements with other banks to have inter-bank ATM networks. The charges levied on the customers for use of ATMs varied from bank to bank and also varied according to the ATM network that was used for the transaction. RBI issued directives making use of own bank’s ATM or any other bank’s ATM free of charge for cash withdrawal, from April 1, 2009. This led to increase in volume of ATM transactions from 17,797 lakh aggregating to Rs.4,38,151 crore during 2007-08 to 23,530 lakh aggregating to Rs.6,16,456 crore during 2008-09.

As per IBA, a majority of the ATM transactions are in the range of average withdrawals of Rs.3500 to Rs. 40000, and 90 percent of all transactions are below Rs.10,000. Hence, the intended purpose to serve the common man is achieved. However, there was a small minority of users who withdrew very large sums on account of high card limits given by some banks to privileged customers.

However, there is more to it than meets the eye. For banks like ICICI and SBI who have established ATM/branch networks have nothing to lose because their customers can find their ATMs close by. These banks can thus, earn a lot of money from other banks with smaller networks whose customers will have to look for ATMs for transactions.

The banks with smaller networks would, thus always encourage their customers to come to the branches rather than using ATMs of other banks. Also, the customers and banks would prefer to have lower transactions and larger withdrawals from ATMs of other banks. While it may be argued that banks who have created large networks should get some benefit of maintaining such ATM networks. After all, it costs close Rs 60000 to Rs 70000 per month for a bank to operate an ATM (including maintenance, electricity, rent and direct expenses of operationg an ATM). But what about the customers? Is it wise for the IBA or the RBI to be biased towards customers of banks with large networks?

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