Mumbai: A proposal by Indian banks to limit free transactions on automated teller machines (ATMs) to five per month for both their own and other banks’ customers has found few takers, and some critics say such a move would prove counter-productive.

Indian banks are lobbying for central bank approval to charge users of their ATMs a fee for more than five transactions, citing the increased cost of maintaining the network of machines. A representation to this effect has been made by the Indian Banks’ Association (IBA), the lobby group of banks, to the Reserve Bank of India (RBI).

Currently, banks are not allowed to charge their own customers for use of the ATM network, regardless of the number of transactions. Other banks’ customers are allowed upto five transactions free of cost per month.

“Operational costs have risen due to the need for security in every ATM and increase in frauds and we think the people of the country are ready to pay if provided a service," said IBA chief executive M.V. Tanksale.

Banks have been under pressure to step up security at ATMs after an incident in Bangalore in November, when a woman bank manager was brutally attacked and robbed inside an unguarded ATM kiosk where she was withdrawing money. Banks are also trying to earn more fee income as transactions on ATMs increase with their growing reach.

ATM service providers argue that limiting the number of free transactions may push customers away from using the machines and back towards bank branches, making it more expensive for banks in the long run.

“Looking at ATMs as a revenue channel is a misnomer. They are services channels; they ideally substitute branches where cost of transacting in a branch is higher," said Sanjay Kapoor, founder director of Electronic Payment and Services (P) Ltd, an ATM service provider.

Babu Venkitachalam, nodal officer at Banks ATM Network and Customer Services (BANCS), an ATM network of 13 banks, added that ATM transactions may drop if banks charge money for usage or raise the fee.

“ATMs are now a big means for financial inclusion despite the advent of mobile and other technologies. It is now a chicken and egg (situation), if banks increase charges, transactions will fall and if they don’t then they will have to bear the cost. I think the solution is to identify the areas where security is needed and not an overall increase," he said.

ATM usage in India boomed after RBI in March 2008 directed banks not to charge their own customers for use of the machines. Additionally, ATM transactions from any bank were made free effective from 1 April 2009. Subsequently a five transaction cap was introduced because the banking system could not take the load of an increase in transactions. In making ATM usage free of cost, the RBI cited the international experience; banks in the UK, France and Germany do not charge money for ATM transactions.

“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," RBI said.

The result was a surge in the number of ATM transactions and an increase in the ATM penetration in the country. According to data from International Monetary Fund’s Financial Access Survey, India had only 5.31 ATMs per 100,000 adults in 2009, but by 2012 this rose to 11.21 ATMs per 100,000 adults.

Even so, ATM penetration in India remains far below that in economies like China where there are 37.51 ATMs per 100,000 adults, Brazil (118.60) and Russia (182).

The fear is that increasing charges on ATM transactions would lower transactions and eventually the incentive for banks to expand their ATM networks.

State Bank of India (SBI), the country’s largest lender, which also has the largest ATM network as well as most number of cards issued in the country, is batting for more fees from ATMs.

“Whatever services we give, ultimately it has to be a win-win situation...We just want a commercially viable model, I cannot afford to lose month after month," SBI chairperson Arundhati Bhattacharya told Press Trust of India last week, adding that ATM operations were making losses in many locations.

SBI, with 35,162 ATMs and 127.2 crore debit cards, dominates the market in the country.

IBA’s Tanksale said charging for ATM use may help reduce the use of cash and push customers towards other channels such as debit card transactions.

“The idea is also to ensure that transactions move towards point-of-sale terminals," said Tanksale.

Rajiv Kaul, executive vice chairman and chief executive officer (CEO) CMS Info Systems Pvt Ltd, says that ATM charges will have no bearing on the use of cash.

“The cash that people withdraw from ATMs is already a part of the banking system and though there are numerous electronic payment modes that have come, cash continues to be the most efficient and cheapest medium of payment," Kaul said.

Banks’ argument that they need to limit transactions because of security concerns also does not hold water, Kaul said.

“Law and order is a state problem, you cannot have security guards posted everywhere there is a crime. There are some cities that these incidents have happened more often and it requires an intelligent analysis rather than one policy," Kaul added.

The proposal by banks has drawn a sharp rebuke from RBI deputy governor K.C. Chakrabarty, who called it “ridiculous" and “illogical".

“If the cost of withdrawing money is so high that they charge you, then they may just start charging you even if you go to a bank branch. That is why I feel we require more banks, there is not enough competition and banks are becoming illogical," Chakrabarty told the ET Now TV channel in an interview.

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