Cap on use of 3rd party ATMs from October 1

Yielding to the bankers demands, the Reserve Bank of India(RBI) has now modified the existing system where the use of the ATMs are bank neutral for the customers. The new changes are expected to be implemented by October 1.

The new development as and when it is implemented would now allow the customers to withdraw cash from other banks' ATMs for not more five times per month at no cost.

Also, in case of such withdrawals, an upper limit of Rs 10,000 is fixed by the RBI as demanded by the IBA.

RBI executive director G Gopalkrishna has said that the apex bank is currently reviewing the Indian Banks' Association's (IBA) demand on limiting the number of free withdrawals and also putting an upper cap on the withdrawal amount from other bank's ATMs.

He conveyed this to the media persons on Friday on the sidelines of 2nd Financial Inclusion and Digital Payment Conference in Mumbai.

However, the RBI spokesperson said that the apex bank has already communicated the acceptance of demands to the IBA. IBA's chief executive K Ramakrishnan and his deputy K Unnikrishnan were not available for their comments on this issue.

When contacted by FE, Bank of Baroda chairman and managing director, and IBA deputy chairman MD Mallya said that his bank has not yet received any official word on this development by RBI or IBA.

RBI had earlier allowed the free usage of ATMs across the country April 1, 2009 onwards the move that hit the banks' balance sheet as cost of withdrawals, the interchange fee as high as Rs 20 per transaction, was not passed to the customers.

While reacting to this development, a senior executive of a private sector bank conveyed that making ATM use totally free for the other banks' customers is not financially viable for the banks to service as the customers who usually maintain average quarterly balance of up to Rs 25,000 in their respective accounts in the prevailing scenario.

He said that a bank usually earns Rs 1,250 per annum in such cases as 5% is the average net interest margin to maintain the savings accounts in the Indian banking system. If a customer accesses five another ATMs per month for free withdrawals, as currently allowed by the RBI, the bank would loose at least Rs 1,200 as interchange fee per annum.

This would lead to a situation where the private banks would either phenomenally increase their annual debit card fees or increase the minimum balance requirements in the longer run. It would thus hurt the promotion of financial inclusion in the country as opening an accounts of a low-networth customer may not get a favourable response from private sector lenders.

The executive said, it's a strong possibility that after a certain span of time, the IBA would again approach the regulator to disallow the present facility as far as free withdrawals from another banks ATMs are concerned.

Currently, around 40,000 ATMs are operated by about 80 banks in the country. Couple of months back, the RBI relaxed the norms for the banks to get an approval to open offsite ATMs anywhere in the country.

The banks now merely inform the regulator when a new offsite ATM is opened as no prior permission is required.