CIRCUIT BREAKER. The curious case of loss-making ATMs

Swaminathan, an MBA student, decided to make ATMs the subject of his summer project, when he found his father fuming over the hike in ATM charges from November 1. “All this new technology is just an excuse for these banks to fleece you,” his father said. “Now the RBI is saying that if I visit another bank’s ATM more than three times a month, they can charge me ₹20 per transaction. Even checking my balance, or simply slipping into the ATM to enjoy some AC, counts as a transaction. They don’t even want me to visit my own bank’s ATMs more than five times. Imagine paying to withdraw my own money! Daylight robbery! Swami, go to T.Nagar branch and get me some money.”

Groaning, Swami made his way to the branch. The tiny but plush branch of Praxis Bank was choc-a-bloc with personal banking executives talking in hushed tones with wealthy looking customers. After a 20-minute wait, Swami got his turn. “So sir, can we interest you in a platinum credit card or a pre-approved personal loan? We have this really great long-term savings plan for your child’s education,” said the young lady, all charm.

Clarifying that he had no children, Swami said he wanted to withdraw ₹5,000. “Why don’t you visit the ATM, sir?” she asked, frostily.

“Your ATM is miles from my home. We have an SBI ATM nearby. But I hear that, from next week, withdrawals from it attract a fee,” mumbled Swami sheepishly. The lady bristled: “We’re only collecting what we are forced to shell out as inter-change fee. Public sector banks charge us every time our customers use their ATMs.”

Done with the transaction, Swami decided to meet his guide at college to ask her how he should approach his project. At the faculty room, a news item caught his eye.

It had RBI officials saying: “We have observed that bank customers, who clearly have too much time on their hands, are making too many visits to the ATM. Please note that every visit costs the bank real money — ₹18.48, to be precise. Just think how unfair this is to some customers. Some disciplined people carefully plan their expenses and visit the ATM just twice a month to withdraw ₹30,000. Then these scatter-brains keep withdrawing tiny sums like ₹500. Every time they withdraw for free, somebody else is paying ₹18.48. Is this fair?”

“Guilty,” thought Swami who, as a student, never had more than a couple of thousands in his account and was always popping over to the ATM. “I love this RBI guy’s logic. I should ask my father to make sure my minimum balance is ₹1 lakh at least. That will keep me from imposing undue hardship on all these other customers.”

Mrs Bose, his corporate strategy lecturer, felt that he should view the big picture. “CASA (current account savings account) is the lifeblood of banking and ATM networks help banks attract it. So go and study the behavioural effects of higher ATM fees on CASA. I will put you on to a senior official who’s retired from a public sector bank,” she instructed.

Buckling down to research, Swami found that PSBs owned the largest ATM networks. RBI data showed that of the 1.67 lakh ATMs in the country as of June, 1.17 lakh were owned by PSBs and 49,000 by private sector banks, while foreign banks got by with just 1150! He also found that private banks had drastically slowed down ATM openings, adding just 600 in the first three months of the year, while PSBs added 6,000.

“Madam, tell me, do PSBs earn a lot of fee income from their ATM networks? After all, all the private and foreign banks seem to depend on them and say they pay substantial fees too,” Swami asked the retired public sector banker.

“Rubbish, beta , who told you that? Many of our ATMs don’t even break even. You see, while private banks today pay us only ₹15 for transactions by their customers, we’re actually incurring a cost of ₹16.50. Setting up each ATM costs ₹6-7 lakh initially. Then there are running costs, which have shot up after that episode at Bangalore where a woman was attacked at an ATM. Before that, we didn’t really have 24/7 security guards, you know. Who would take the trouble of breaking open an ATM? Anyway, there was a good chance the ATM had run out of cash the previous day,” she said with indisputable logic.

She explained that the security guards cost ₹30,000 a month and real CCTVs with film (instead of dummy cameras that were used earlier), cost money too.

“But if ATMs are unviable, why have PSBs been on an ATM opening binge? Isn’t it better to get customers to visit your branches?” asked Swami, curious.

“Pah! It is all the fault of these private sector banks. First, they lured away all our big CASA customers, promising 24/7 banking and a nationwide ATM network. Once we scrambled to open thousands of ATMs, they dropped the idea like a hot potato. Now they want our ATMs to give their customers a 24/7 banking experience. This whole 24/7 banking is a bad idea. How much do you expect bank staff to work? If you hold back staff beyond 6 pm and make them miss their mega-serial, the bank incurs costs on overtime pay. And our branches are already full of senior citizens wanting to update their passbooks. We don’t want any more customer visits, baba ,” she said.

So if neither private banks nor PSBs really wanted to set up ATMs, can we not have independent firms running ATMs which everyone could share?

Swami took this bright idea to his economics professor. “The RBI already thought of it two years ago. They are called white-label ATMs. But they haven’t taken off. You see, the operators don’t just have a target on the number of ATMs, they also have to ensure that 50-60 per cent of them are in tier II, III and IV towns. An ATM needs 150-200 transactions to break even. While the ones in T.Nagar or Annanagar are busy, those in Erukkatur or Kondangi are mainly used to shelter goats. How will they be viable?”

Swami was flummoxed. By now, he was wondering if it wasn’t far easier for people like his father to cough up ₹20 and be done with it.

But Mrs Bose helped him sign off his report with a good big-picture conclusion. “On the face of it, RBI’s move to dis-incentivise over-use of ATMs may seem anti-consumer, but it has wider economic benefits. There is a need to wean the Indian economy away from excessive cash transactions, which also propagate black money. What is more, policymakers prefer cash-based transactions only when all the cash is flowing into the banking system and helping to build CASA. Therefore, customers should look at their savings accounts as long-term investments and not try to impose undue costs on the economy by trying to frequently withdraw their cash.”

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