Shyamal Banerjee/Mint
Shyamal Banerjee/Mint

Only 10 free ATM transactions per month

It's only 8, if you stay in one of the 6 metros. Crossing the limit could cost you up to `20 per use

Manasvini Mathur, 19, a student at Institute of Hotel Management, Catering Technology and Applied Nutrition, Mumbai, tends to withdraw cash from an automated teller machine (ATM) at least 3-4 times a week. “I actually don’t have an exact count for the number of withdrawals. I can’t carry cash with me all the time because if I have excess cash, I overspend," said Mathur, adding that she thinks it’s unsafe to keep too much cash even at the paying guest accommodation where she stays.

Mathur is not alone. “I never keep more than 500-1,000 in cash with me to avoid spending excessively. And it costs me nothing to withdraw from an ATM whenever I fall short of cash," said Aditi Tiwari, 29, an interior designer in Jaipur.

How many times do you withdraw cash from an ATM in a month? Well, the Reserve Bank of India (RBI) has put in place a regulation which leads to you being charged for the excess number of transactions at an own-bank ATM.

Free no more

On 14 August, RBI issued a circular stating that banks are now free to charge customers even if they use their own bank’s ATM. As of now, no transactions are charged if you withdrew money from your bank’s ATM. But from 1 November, banks will be allowed to charge if you transact more than five times a month at your own bank’s ATM.

Also, as of now, you can make five free transactions on other banks’ ATMs as well. But from 1 November, only three such transactions will be free. And the transaction doesn’t necessarily have to be money withdrawal; even non-financial ones such as balance enquiry, chequebook request and mini statement request will be included in this limit.

If you cross the limits, the maximum cost that you will have to incur per excess transaction is 20. Also, it has been left to the banks to decide if they want to charge a fee at all or not.

The reduced number of free transactions at other banks’ ATMs is applicable only in six metro cities—Mumbai, New Delhi, Chennai, Kolkata, Bangalore and Hyderabad. But the restriction on own-bank free transactions is applicable throughout the country.

This move could bring down footfall at ATMs.

The central bank has also asked banks to use messages, stickers or posters to enable customers to identify the status of the ATM regarding the availability of number of free transactions.

For the better

Bankers say these restrictions will encourage transactions via other channels, benefit banks with large ATM networks and prevent misuse of free transactions.

“This move will only benefit banks with large ATM networks. Mid-segment banks having fewer ATMs are anyway dependant on other banks’ ATMs, which increases the cost of transaction. In the short term, banks would need to rethink their ATM expansion strategies, which will now witness a slowdown," said Aspy Engineer, president and country head—ATM management and currency chest, Yes Bank Ltd.

Banks also feel that this will drive people to use digital channels more. “While we do not foresee any substantial impact on our branch banking, this development would further fuel the digital channels of the banking system. Any move to restrict cash transactions will positively influence banks focusing on those innovative channels for growth," said Brett Morgan, country head-branch banking and private clients, ING Vysya Bank Ltd.

“The restriction will prevent misuse of free transactions via ATMs. People will be more selective in choosing an ATM, and will prefer their own bank’s ATM over other banks. But it’s unlikely that it will drive customers to branches," said A. Surendran, head-retail and international business, Federal Bank Ltd.

The math

Any kind of ATM transaction comes at a cost to the bank. “When a customer uses her own bank’s ATM, on average a bank incurs a cost of 18-25 per transaction," said Loney Antony, managing director at Prizm Payments Services Pvt. Ltd. For instance, if you are a customer of bank A and use its ATM, it costs the bank 18-25. If you use the ATM of bank B, where you are not a customer, bank A has to pay an interchange fee of 15 per transaction to bank B. The interchange amount is capped as of now.

Besides the transaction cost, banks also incur a cost on the ATM’s infrastructure. “The cost of deployment and maintenance of ATMs is increasing, which affects the profits of the banks," said Surendran. So, will this move reduce the cost for banks? “Decrease in the number of transactions should ideally have been coupled with an increase in the interchange rates payable. With no change in the interchange rates, ATMs will continue to be an expense channel," said Engineer.

However, this move makes branch banking and usage of cheques—which are 5-10 times more expensive for a bank than ATM services—in a way cheaper for you. According to April 2014 RBI data, India has 162,000-plus ATMs.

What should you do?

It all started when a few banks and the Indian Banks’ Association (IBA) approached RBI seeking changes in the rules for free transactions on ATMs. Referring to the growing cost of deploying and maintaining them, and the rising interchange outgo due to these free transactions, the IBA had sought the removal of free transactions at other banks’ ATMs in metros and other large cities in the country.

“A total of 8-10 free transactions is good enough for an individual. Withdrawing small amounts every other day is like abusing the service. If you plan properly and withdraw accordingly, you don’t have to pay an additional cost," said Suresh Sadagopan, a Mumbai-based financial planner.

If you use an ATM more that five to eight times a month, you will have to be more careful from 1 November. The RBI guidelines in a way force you to limit your ATM usage per month. It would be better to use a debit card for shopping needs. But remember that some outlets charge an additional 1-2% of the total amount if you pay by card. For non-financial transaction, try and use Internet banking so that you don’t exhaust your free ATM limit for cash withdrawal. Better financial discipline will help if you, like Mathur and Tiwari, avoid keeping excess cash due to fear of overspending.

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