Banks Urge RBI to Relax Rules on ATM Cash-outs

Banks have requested the Reserve Bank of India to give relaxation on its recent guidelines on ATM cash replenishment whereby the regulator put in place a mechanism to penalize lenders for delay in refiling cash in teller machines.

Banks have submitted that constantly replenishing ATMs in rural geographies will require significantly higher investments, making the business unviable.

“Representations have been made to the regulator to relax some rules on cash-outs and down time,” an industry insider said.

In a notification last month, the RBI had directed banks and white label ATM operators to strengthen systems to monitor availability of cash in ATMs and said a cash-out situation for more than 10 hours in a month at a teller machine will attract a penalty of Rs. 10,000 starting October.

“While we don’t want to inconvenience our customers, the fact is that ATMs are cost centers and increasing rotations of filing cash and downtime checks will significantly add to our expense,” said the person quoted above.

Banks are of the view that cash availability will drop as the go deeper in rural geographies as the cost to set up and maintain ATMs is high.

“Cost of transportation for ATM fitted notes is very high in rural India because of the distance between ATMs and the sparse network,” a banker in the know said, “Generally, cash management companies and ATM service providers visit once in a few days to replenish cash and fix other technical or hardware issues,” There are also concerns that the penalty would discourage expansion of ATM network and prompt many operators to reduce the number of teller machines they service, particularly in rural areas.

Some banks have already been slowly reducing ATM presence.

At the end of July, there were around 213,000 ATMs in the country, up from 209,000 a year earlier, a meagre growth of 1.5%. During the same period, micro-ATMs have grown more than 55% to around 474,000 from 305,000.

A micro ATM is a portable card swipe machine that remotely connect to a bank’s system. It does not contain cash; instead, a banking correspondent or a shopkeeper who has installed it hands out cash to account holders or charges them for their purchase.

Banks are also in the process of reworking contracts with ATM vendors and white-label operators so that they can pass on higher costs to them.

“We are in the process of reworking agreements with vendors where covenants will include clauses where the service providers would bear all punitive cost they could arise in the future,” one of the persons cited above said.

In order to make the business more viable, the central bank recently increased the interchange fee on ATM transactions from Rs.15 to Rs.17. ATM interchange is the charge paid by the bank that issues the card (issuer) to the bank where the card is used to withdraw cash (acquirer).

In addition to this, the cap on fee that can be charged to the customer has been increased to Rs.21 per transaction from Rs.20 earlier.

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