The Reserve Bank of India (RBI) has posted suggestion paper in the public domain for discussion, the idea of allowing customers of one bank to withdraw cash from ATMs of other banks free of charge from April 2009. It said that the current charges for cash withdrawals from third-party ATMs should be limited at Rs 20 per transaction, from March 31, 2008. It has also instructed to stop the existing charges that are lower.
The RBI has to intervene because of the unwillingness shown by some larger banks to share their ATM networks with other banks and look for ways to allow bank customers free cash withdrawal across all ATMs.
According to the sources RBI’s aim to make cash withdrawals free for customers, at ATMs of banks with whom they do not maintain accounts, due to the reaction shown by State Bank of India and its associates banks of not joining the National Financial Switch (NFS), which is owned by the central bank.
“The idea is to create an all-India payment structure, which makes cash withdrawal at ATMs affordable for all sections of the population. State Bank of India’s reluctance to be part of the National Financial Switch is creating a hindrance of sorts in this process,” said a senior official from the banking industry.
According to a SBI official, the reason behind the country’s largest bank not joining the RBI-owned NFS network is that, this will result in it losing out on the competitive edge it has with their large ATM network. SBI has made huge investments to build the country’s largest ATM network, with a total of over 8,000 ATMs. The country’s largest bank, whose high net worth customers are being targeted by private players, has decided to use its ATM network as a selling point.
According to senior officials from the banking industry the customers in India are paying excessive charges as compared to international practice, wherein customers only need to pay for using ATMs set up by non-bank players.
Banking sources added that if customers were to be allowed free withdrawal after 2009, then banks with a high customer transaction to ATM ratio would need to compensate those banks with large ATM network. If a bank does not wish to pay others, it would have to ramp up its own network.
“The interchange fee, which banks pay each other, will have to be retained, and since the central bank’s mandate of not passing it on to the customers can not be bypassed, it will have to be worked out amongst banks,” said a banker with a large public sector bank. Senior industry officials acknowledged that banks could discuss with each other on what is the appropriate inter-change fee they could charge from the customers depending upon a host of factors.
The factors such as the location, the number of ATMs which the other party is bringing into the fold and the volume of transactions could be taken into consideration. At present banks do pay interchange fees to other banks, whose ATMs their customers have an access to, still it is the customer who ultimately bears this cost. Usually, smaller banks enter bilateral arrangements with larger players or join ATM-sharing networks to offer their customers access to a larger network.
Some banks are already offering this service free of cost. But because they are having a smaller customer base and the volumes of such transactions are quite low, they might not be shelling out huge interchange charges to other banks.
At present, at the higher end, the customer is charged anywhere up to Rs 57 for each withdrawal from a third-party ATM, and up to Rs 20 for the balance inquiries. According to the central bank sources as there is no transparency in these charges, and that they vary from bank to bank is a major restriction for customers to use other banks’ ATMs.
According to the sources it is almost impractical to have a uniform structure for this interchange fees which banks need to shell out in the event of transactions being made free to customers. This would be purely a joint arrangement, which depends on the two banks which are involved in the picture.