On Wednesday, ATM (automated teller machine) service providers said changes in the regulatory landscape had made the business unviable, which could lead to 50% of the country’s 2.38 lakh cash machines shutting down by March next year. The Confederation of ATM Industry (CATMi), the Mumbai-based trade association of makers, operators, and outsourcers of cash machines, has said that the regulatory changes will make it impossible for ATM service providers to meet the cost of compliance. The ATM industry thinks there is no option but for banks to “step in to bear the load of the additional cost of compliances”.
What “regulatory changes” is CATMi referring to?
In April, RBI issued a notification saying cash-in-transit companies involved in ATM replenishment services, cash pick-up and cash drops, should have a net worth of at least Rs 100 crore and a fleet of 300 vehicles, among other requirements. Also, in order to mitigate risks involved in open cash replenishment, RBI has told banks to use lockable cassettes (boxes in which currency notes of each denomination are stacked) in ATMs, which could then be simply swapped to replenish cash. Banks were told to replace open cash replenishment with cassette swaps in at least a third of the ATMs operated by them every year, so that the transition could be completed by March 31, 2021.
In August, the Home Ministry notified rules that said ATMs could not be replenished after 9 pm in cities, and cash vans could not carry more than Rs 5 crore on a single trip. The vehicles transporting cash should be equipped with security alarms with GSM-based auto-dialers, motorised sirens, tubeless tyres, etc, and have at least two security guards in them.
What is all of this likely to cost?
Industry sources said the cost of cash transits is currently Rs 9,000-10,000 per ATM per month, and compliance with norms notified by the Ministry and RBI will cost another Rs 3,900 per ATM per month. But this doesn’t include the cost of the cassette swap; moving from the existing system of cash replenishment will raise the additional cost per ATM per month by another Rs 1,000. The ATM industry says that unless banks compensate them for all these investments, many contracts may have to be surrendered, leading to largescale closure of ATMs.
So, what is the situation for the banks?
Currently, banks charge each other an “interchange fee” of Rs 15 for every cash transaction and Rs 5 for every non-cash transaction at their ATMs by customers of other banks. Banks recover this fee from customers, who have to pay for using ATMs beyond their quota of free transactions. The ATM service providers get Rs 8-9 on average per transaction. CATMi has complained that revenues for providing ATMs as a service are not growing at all, given very low interchange charges and ever-increasing costs, including those brought about by the regulatory changes.
And what are the banks saying?
The ATM industry wants the interchange fee to be raised from Rs 15 to Rs 24; public sector banks are, however, learnt to be uncomfortable with putting extra burden on their customers. Banks such as State Bank of India had at one time charged up to Rs 25 for an ATM transaction, but were forced to bring it down to Rs 15 after customers protested. RBI too hasn’t been comfortable with charges being increased periodically. Banks and service providers say their costs will increase after making the changes in ATMs as directed by RBI in its June 21, 2018 circular. The Indian Banks’ Association, the representative body of bank managements, will have to work out a new fee that is acceptable to all stakeholders, including customers. Banks say they will have to pass on any increase in charges to customers.
What can happen if this matter is not addressed?
At least 1.13 lakh ATMs that are managed by service providers could head for closure, sources estimate. A large number of these ATMs will be in the rural areas and in tier 4 and tier 5 cities. Their shutting could push up customer visits to bank branches by an estimated 30%, and add to the workload of the staff, besides raising the cost per customer for the bank. Among those affected will be the beneficiaries of the government’s financial inclusion programmes such as the Pradhan Mantri Jan Dhan Yojana.
According to Navroze Dastur, Managing Director of NCR Corporation, India and South Asia, and a member of the CATMi board, a working committee comprising officials from RBI, Indian Banks’ Association, and CATMi should be formed to look into the issue.