Your ATM Transactions May Cost A Lot Less Soon

MUMBAI: This could possibly be the best Christmas gift from the Reserve Bank of India to bank customers. The central bank has proposed to allow customers of one bank to withdraw cash from ATMs of other banks free of charge from April 2009.

In a draft paper on pricing and access to ATMs, RBI said that current charges for cash withdrawals from third-party ATMs should be capped at Rs 20 per transaction, from March 31, 2008. It has also mandated a freeze on existing charges that are lower.

The bold proposal has produced sharp reactions even before details could be worked out. Banks that are paying lakhs of rupees as rent every month for ATMs in prime locations are worried about their investments. But smaller banks who are yet to build their own networks are very happy with the proposal. The industry association has also expressed its concerns.

“It is not being fair to the bigger banks which have larger networks, and will come in the way of innovation. Smaller banks will want to piggyback on their networks, and it doesn’t make perfect business sense.” said K Unnikrishnan, deputy chief executive, Indian Banks’ Association. He added that there is a considerable cost of cash-replenishment and security for the bank maintaining ATMs.

“We welcome the central bank’s attempt at bringing in transparency to the system. However, this could lead to a slowdown in setting up of ATMs, if the banks do not get a fair price for the use of their services, especially by customers of other banks,” says Aspy Engineer, vice-president, alternate channels, Axis Bank. Others feel that banks may isolate themselves from shared payment networks and issue cards that work only in their captive ATM network.

However, there are also banks which support the move. “We welcome such a proposal as it will increase the inter-operability of ATMs.” said Vivek Wig, head of retail banking at Centurion Bank of Punjab. A banker with a large public sector bank said the move will act as a dampener for its ATM expansion plan as there is no incentive to make large investments. Also, banks can no longer look at the ATM-interchange fee as a business model that generates a large stream of revenue. The draft has not made it clear as to what will happen to these charges post-April 2009, he added.

RBI has sought feedback on the draft. Incidentally, the draft has been circulated by banks days after RBI’s technology subsidiary, the Institute for Development and Research in Banking Technology (IDRBT), waived off the switching fee it charged banks for inter-bank transactions. This reduction in the transaction cost, according to RBI, is expected to be passed on to the customers by the banks.