India’s ATM ecosystem needs urgent repair, especially now

In order to provide relief to those hit hard by the nationwide lockdown, the Pradhan Mantri Garib Kalyan Yojana is relying heavily on direct cash transfers into bank accounts of the poor. The Centre has claimed that over 32 crore beneficiaries — women Jan Dhan account holders, farmers, construction workers and seniors — have already received ₹29,350 crore in bank credits, which they are now free to withdraw. But ground reports suggest that this is easier said than done. Given inadequate ATM penetration and their poor maintenance in India’s hinterland, reports are emerging of poor folk trudging for miles only to find the local ATM not operating at all or short of cash to disburse. A BusinessLine investigation highlights that while ATM users in far-flung areas complain of cash shortages, service providers cite difficulties in effecting repairs and refilling cash at ATMs amid the lockdown. The truth though is that India’s ATM network outside the cities has been in decline since the 2016 demonetisation, with both banks and third-party players clearly disinterested in setting affairs right. India’s ATM penetration relative to population is one of the lowest in the emerging markets, and less than a fifth of the ATMs are in rural areas.

Regulatory red tape seems to be squarely responsible for the ATM ecosystem being in its current state of disrepair. First, there’s the long-simmering issue of low interchange fees that ATM providers are allowed to levy to permit other banks’ customers to access their machines. ATM operators have for long argued that the RBI-mandated fee of ₹15 is too low for viable operations, particularly in rural areas where footfalls are sporadic. But the RBI and some factions of the banking industry have been strangely reluctant to accede to this hike. Last June, the regulator lobbed this issue to a committee, but the report is yet to be made public or acted upon. While white-labelled ATMs offer a good solution, entrants to this arena have been hobbled by the RBI’s convoluted rules mandating year-wise and city-wise quotas for the rollout. This past year, the RBI and the Ministry of Home Affairs have also dashed off a series of circulars asking ATM operators to effect software and security upgrades to make their ATMs safer. Such investments are much-needed, but operators complain that they further stretch ATM break-evens. ATM operations have also been hobbled by a shake-out in cash management firms after the RBI specified that they needed to maintain a minimum net worth of ₹100 crore, a fleet size of 300 vehicles, two armed guards and other bells and whistles, in a sudden change of ground-rules last year.

Overall, the complete lack of co-ordination between participants in the ATM ecosystem — regulator included — is hurting the hapless small savers the most. Without access to the cash that is being promised, many of the NDA regime’s much-touted social welfare schemes — from PM Kisan to the Garib Kalyan Yojana — risk remaining only on paper.

COMMENT NOW