THOUGH automated teller machines have been in use in India for several years, many bank customers — especially older people and the illiterate — have been reluctant to access them for cash transactions.
Most of them are unfamiliar with the technology and fear that they would be cheated of funds. In fact, many bank ATMs are also user-unfriendly and customers who are slow have seen their debit and credit cards being swallowed by the machines, or the ATMs refusing to dispense with cash.
Of course, the customer does not actually get cheated, as the bank reconciles the transactions and credits cash that was inadvertently shown as having been withdrawn. But in some cases it takes up to 21 working days for the reconciliation to be executed.
Recent years, however, have seen most banks deploying simpler machines that are easy to operate, can be accessed even by semi-literate or even illiterate customers and importantly, where the card does not have to be inserted, but can be swiped and pulled back. ATM usage has consequently gone up significantly.
More than 15 years after banks began installing ATMs in India, today there are an estimated 100,000 machines, mostly located in the metros and tier-I and tier-II cities. Banks are increasingly looking at expanding their network in tier-III and tier-IV cities, where usage is going up significantly.
The Indian government, which is gradually realising the need to shift to target-based subsidies — where the subsidies will be directly transmitted to the beneficiaries’ bank account, instead of giving it to intermediaries, who have the tendency of swallowing the funds — is keen that banks expand their ATM network.
In fact, the government as part of its financial inclusion programme, has directed banks to ensure that every Indian household has access to a savings bank account — including zero-balance, or no-frills account — so that funds could be transferred directly to the accounts by various ministries, departments and agencies. This would necessarily include the issuing of debit cards and ensuring that the beneficiaries have access to ATMs in the even the remotest locations.
Lack of bank accounts sees millions of Indians, including those in the below-the-poverty-line category, poor pensioners, victims of natural calamities, beneficiaries of social welfare schemes including the National Rural Employment Guarantee act and the disabled and the aged being deprived of their just dues.
STRENGTHENING the ATM networks of banks, besides ensuring lower transaction costs for customers has emerged as a major challenge for the government. The finance ministry has been urging state-owned and even private banks to lower third-party ATM charges in cases where the account-holders access cash or inquiries from the ATMs of another bank.
Pranab Mukherjee, who is now the presidential nominee of the Congress, urged top bankers — before he resigned as the finance minister — to ensure lower transaction fees. He asked the chief executives of state-owned banks to do away with transaction charges for use of debit cards by the poor.
The Reserve Bank of India, the central bank, recently allowed corporate entities to set up ‘white label’ ATMs across the country to popularise their usage. White label ATMs will be owned by companies that will offer the services to all banks by charging them a fee for every transaction by their customers. Brown label ATMs are those where a private operator operates the ATM on behalf of a particular bank, which has the licence for the machine.
According to the RBI, any corporate entity with a net worth of Rs1 billion (about $18.19 million) is entitled to set up a white label ATM. But it has to put up between 9,000 and 25,000 machines over a three-year period. The emphasis is on installing such machines in smaller cities and towns; for instance, under one scheme unveiled by the RBI, an operator can install one ATM in a tier-I or tier-II city only after installing three machines in tiers-III to VI towns.
“Although there has been nearly 23-25 per cent year-on-year growth in the number of ATMs, their deployment has been predominantly in tier I and II centres,” says the RBI. “There is a need to expand the reach of ATMs in tier III to VI centres. In spite of the banks’ pioneering efforts in this direction, much needs to be done.”
The non-bank ATM company will get paid by banks for every usage by its customers. Despite this, there is huge savings for a bank. An average ATM costs about Rs300,000 to Rs500,000; banks also have to incur an additional cost of nearly Rs50,000 every month for rent, security and electricity. In rural areas, where power supplies are erratic, the ATM operator has to install a power generator.
While in cities security is not that important, in rural areas the company will have to pay for round-the-clock security as well.
The government and the RBI expect at least 60,000 to 80,000 new ATMs to be installed over the next few months as private players aggressively enter the fray.