New regulations on automated teller machines (ATMs) introduced by the Reserve Bank of India (RBI) in 2014 haven’t adversely affected the banking system as was feared.

These regulations, introduced in August 2014 and effective from November 2014, reduced the mandatory minimum number of free non-home-bank ATM transactions to three per month in metro areas (

If that previous sentence sounded confusing to you, take comfort in that you were not the only one, for the regulation got misreported widely, with reports claiming that the RBI had barred banks from offering more than the above number of free ATM transactions from non-home ATMs.

RBI governor Raghuram Rajan had defended the action on the grounds that free ATM withdrawals were “subsidizing the use of cash" and that it led to cross-subsidization of users since not everyone utilized ATMs to the same extent (

Yet, this move led to concerns that these regulations might lead to unintended consequences such as people taking out more money from the banking system.

In my piece for Pragati, for example, I had argued that people would withdraw more money on their (now limited) ATM visits, which would reduce money in the banking system ( I had also argued that the new regulations would adversely impact the number of non-home-branch ATM transactions, and would reduce the incentives for banks to set up new ATMs.

The regulations came into force in the beginning of November 2014, and we now have about six months of data (the RBI has released data till April) to see how it has impacted the banking system. The short answer is that while there was some adverse effect in November, things have since returned to normal.

Starting with ATM withdrawals, figures 1 and 2 show the number and amount of ATM withdrawals, respectively, per month over the last one year. The dip in February in both graphs is a little hard to explain (that February had only 28 days doesn’t explain the dip sufficiently), but we will ignore that for now, since we are looking at the impact of regulations imposed in November (we might look at the February dip in another piece).

Based on figures 1 and 2, it can be seen that there was surely a dip in both ATM usage and the amount withdrawn in November. It is not sure we can put all the blame on the new regulations, for the graphs show that there is some volatility in the usage of ATMs. However, we see that any dip in November is made up for from December onwards. So, based on this data, it is unlikely that the RBI regulations had too much of an impact on ATM withdrawals.

In my piece for Pragati, I had claimed that the reduction in number of free ATM transactions would result in people withdrawing larger amounts on a particular trip to the ATM. Figure 3 shows the average amount withdrawn per ATM visit (we compute this by dividing the total amount withdrawn by the number of visits) over time.

This shows some interesting patterns (again let us ignore the steep drop for February—it is possible there is some error in the data there). The amount withdrawn per ATM visit came down steadily until August, which is when the RBI announced its new regulations. And then the amount started increasing until November, when the new regulations took effect, and then dropped again.

Based on this data, it is very hard to draw any conclusive causal relationship between the regulations and the withdrawals, but it seems like people initially got spooked once the new regulations came in, but then settled down into “normal" behaviour.

It must be pointed out here that around the same time the new regulations came into force, banks started nudging customers towards fewer withdrawals.

This might be anecdotal, but Citibank (who I bank with) started sending SMSs with the number of free transactions I had utilized each time I used a non-Citibank ATM. Yet, it seems that after about a month of new regulations, “normal service" resumed in terms of people’s use of ATMs.

The other concern I had voiced in my Pragati piece was that the new regulations would reduce incentives for banks to set up new ATMs. To test this, we will look at the total number of ATMs in India over time. Figure 4 shows the absolute number of ATMs, while figure 5 shows the month-on-month growth rate of ATMs.

While figure 4 suggests that the number of ATMs continues to grow steadily, what figure 5 tells us is that it is growing steadily “arithmetically" but the growth rate is slowing down. Ignoring the data for March (when the number of ATMs grew by 1.5%), we see that the growth rate of ATMs has been steadily slowing down. In other words, the number of ATMs is growing but decelerating.

While it is tempting to blame the new regulations for the slowdown in growth of ATMs, it must be pointed out that the growth rate of ATMs was slowing down even before the new regulations were announced, so drawing any causal conclusion is incorrect.

The question remains, however, as to whether people are using non-home-bank ATMs less often.

Unfortunately, the dataset released by the RBI on ATMs doesn’t contain this information ( That analysis will have to wait for another day.