Policy process in India is best described by the cliché— there is/must be a method in the madness. Indeed, often madness seems to be the method. And the new guidelines governing transactions at ATMs fit the bill.
In 2008, the Reserve Bank of India in its wisdom decided that one way to expand banking in the country is to promote access through the expansion of ATMs and its usage. It directed banks to allow, from April 2009, five transactions per month free of charge/levy whether on “own ATMs” or on “other bank ATMs”.
In 2014, the Reserve Bank of India has changed its parish. It has now allowed banks to extract rent from account holders. As against five transactions on other bank ATMs, account holders will have to pay after three transactions a levy of `20-plus Service Tax (after all the government must get a share of the booty).
What has changed? In 2008, the RBI had piously said, “The ideal situation is that a customer should be able to access any ATM installed in the country free of charge through an equitable cooperative initiative by banks.” In 2014, it has piously refrained from clarifying why. The very RBI which advocated the expansion of ATM networks to deliver banking—the number of ATMs has shot up from 32,342 in December 2007 to over 1.65 lakh in March 2014—has decided a cap on number of transactions.
What we do know is that the change of mind follows a representation made by a “few banks and the Indian Banks Association” seeking changes regarding free transactions at other banks’ ATMs to cover costs. We are informed that these guidelines are applicable only to account holders in the major metros of Mumbai, New Delhi, Chennai, Kolkata, Bengaluru and Hyderabad —transactions on ATMs outside these metros the cap remains at five as before. We are also told that the cap of three transactions does not apply to the no-frills and basic accounts.
The move by the RBI allowing banks to target a geographic and economic segment raises several questions. The arbitrariness is explicit. Statistics provided by RBI shows that in June 2014, total ATM transactions was 55, 58, 09,580—roughly 55.5 crore—and the value of the transactions was `1,79,285 crore, which gives an average of `3,100 per transaction. What is the basis of the cap—volume, value or costs? And who decides? What is the loss being suffered by banks on this count? The cost arithmetic must be factored and competing viewpoints made public during the process and in the guideline. Prima facie, a guideline ostensibly based on representations made by banks reeks of the cartel factor.
Sure, there is a cost to maintaining the ATMs. But isn’t that just as true for ATMs outside the six metros? It is estimated that every time a customer walks into the branch, it costs the bank between `45 and `75, whereas it costs a third of that when the customer uses the ATM. What about costs saved? The banks are happy to cite the convenience logic, but where is the cost efficiency logic? And why only the six mega metros and why only accounts obviously held by the middle class? Is this an implicit tax on financial transactions with a cap? Policy cannot be based on the fulcrum of who can pay but what must be paid. Is the ever-willing, ever-vulnerable middle class a convenient Any Time Milch class?
Banks and officials in the RBI have argued that this is international practices. Sure, globally, banks do charge for ATM usage and many do not. The levy is a post-2009 phenomenon, a consequence of the crash of 2008 after which bankers have dug into the accounting warren to balance their sheets. Indian banks survived Lehman Brothers and after. So are we to assume that the PSU banks which host 74 per cent of deposits and have driven this levy are balancing their books, extracting rent for suffering the burden of large NPAs? What will they price next—the cash benefit transfers?
Fact is, comparisons with global players are odious as operating conditions are largely incomparable. ATM expansion in the West was mostly about convenience. In India, it is about access. Is the level of branch penetration the same as in the West? Does it take a week and more for outstation cheques to be credited? Sure, there is NEFT and RTGS, but how many customers are on the Net and how safe is it? Do we have wide choice of payment options? Most importantly, in most paved economies, cash transactions are minimal and family budgets are managed via credit cards. Is that the case with India?
The challenge before India is to boost financial inclusion by creating access. And technology—whether it is ATMs, apps, mobile phones or payment gateways—is the way forward. Technology is also an instrument to bring down costs even as it delivers convenience. Induction of technology must not be converted into an opportunity to profiteer. The idea of pricing access can and will delay, detain and derail the grand plan of financial inclusion.
Shankkar Aiyar is the author of Accidental India: A History of the Nation’s Passage through Crisis and Change