Friday, May 23, 2008

Banks barred from charging fees on use of ATMs

Automated Teller Machines (ATMs) have become important source for banking transactions not only in India but all over the world. More and more banks are installing ATMs to increase their reach. Though ATMs provide variety of banking transactions for customers but they are mainly being used for cash withdrawal and balance inquiry.

Earlier on December 23, 2007, the Reserve Bank of India had released an Approach Paper, the framework on ATM usage charges have been formulated by the central bank. This draft approach paper had come as a shock for major banks like SBI, ICICI bank, Axis Bank and HDFC Bank who have spent a huge amount on building huge ATM networks.

In response to the approach paper the big banks had given suggestion to cap the number of free cash withdrawals every month. The central bank felt that such a cap was not desirable and not practical so it rejected the plea.

RBI had placed the Approach Paper on its website for public opinion. After analyzing the public comments the central bank on 10th March, 2008 issued a notification "Customer charges for use of ATMs for cash withdrawal and balance enquiry".

According to this notification the Reserve Bank of India (RBI) has barred banks from charging any fees for customers using their own banks' ATMs and cut charges on withdrawal from third-party ATMs to Rs 20 per transaction.

According to notification issued:

  • Own ATMs for any purpose will be free of charge
  • Other banks’ ATMs for balance enquires will be free of charge
  • Use of other banks’ ATMS for cash withdrawals will be free from April 1, 2009

Subject to levy of following charges during the transition period:

  • No Bank shall increase the charges prevailing as on December 23, 2007.
  • Banks, which are charging more than Rs 20 per transaction, shall reduce the charges to Rs 20 per transaction by March 31, 2008.
  • The charge of Rs 20 indicated will be all inclusive and no other charges will be levied to the customers under any other head irrespective of the amount of withdrawal.

RBI said, "The (ATM) charges levied on the customers vary from bank to bank and also vary according to the ATM network that is used for the transaction. Consequently, a customer is not aware, before hand, of the charges that will be levied for a particular ATM transaction while using an ATM of another bank. This generally discourages the customer from using the ATMs of other banks. It is, therefore, essential to ensure greater transparency."

According to RBI India has 32,342 ATMs as of December 31, 2007. The RBI has not got into the details of how the costs will be shared. It has given the banks free hand to decide amongst themselves a middle path where banks are not completely discouraged from installing new ATMs and yet banks without any network are not get cheated.

RBI in its notification further stated that in countries such as UK, Germany and France, bank customers have access to all ATMs in the country, free of charge except when cash is withdrawn from white label ATMs or from ATMs managed by non-bank entities.There is also a move, internationally, to regulate the fee structure by the regulator from the public policy angle. 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.

The central bank has clarified that these guidelines do not apply to cash withdrawal with the use of credit cards and for cash withdrawal in an ATM located abroad.

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