Reserve Bank allows lenders to increase ATM interchange fee to ₹17 from August

  • The interchange for non-financial transaction has been increased to Rs6, from Rs5 earlier, with effect from 1 August

Shayan Ghosh
Updated11 Jun 2021
RBI said that customers are eligible for five free transactions, inclusive of financial and non-financial transactions, every month from their own bank ATMs.
RBI said that customers are eligible for five free transactions, inclusive of financial and non-financial transactions, every month from their own bank ATMs.(iStock)

The Reserve Bank of India (RBI) on Thursday raised the interchange fee that banks can charge on automated teller machine (ATM) transactions to 17 per financial transaction.

ATM interchange is the charge paid by the bank that issues the card to the bank where it is used to withdraw cash. While the card-issuing bank is called the issuer, the latter is called an acquirer. This charge is divided between the acquirer and the company maintaining the ATM, which is why banks discourage customers from using ATMs of other banks. This fee has been a bone of contention between banks and ATM deployment companies, with the latter seeking a hike in the fee to 18 per transaction from 15 earlier.

The interchange for non-financial transactions has been increased to 6, from 5 earlier, with effect from 1 August.

In June 2019, RBI had constituted a committee under the chairmanship of V.G. Kannan, the then CEO of Indian Banks’ Association (IBA), to review ATM charges. The recommendations of the committee were made public in July 2020.

The committee had recommended using population as a metric for calculating ATM charges. It had suggested an increase in free transactions at ATMs in all centres with population of less than 1 million, according to Census 2011 and to be reviewed from time to time, to six per month from five at present. For centres with more population, it had recommended retaining the free transaction limit at three.

It also suggested that for ATMs in centres with population of 1 million and above, the interchange fee should be risen by 2 to 17 for financial transactions and to 7 for non-financial transactions. For locations with population of less than 1 million, it recommended raising charges by 3 for both kinds of transactions to increase greater penetration of ATMs.

“The recommendations of the committee have been comprehensively examined. It is also observed that the last change in interchange fee structure for ATM transactions was in August 2012, while the charges payable by customers were last revised in August 2014,” RBI said on Thursday.

RBI also said that customers are eligible for five free transactions, inclusive of financial and non-financial transactions, every month from their own bank ATMs. They are also eligible for free transactions from other bank ATMs, which include three transactions in metros and five in non-metros.

Beyond the free transactions, the ceiling on customer charges is 20 per transaction at present, which will be hiked to 21 from 1 January 2022. This, RBI said, will compensate banks for higher interchange fee and escalation in costs.

The Confederation of ATM Industry said in a statement that RBI’s decision will incentivize banks, managed services provider (MSP) and white label ATM operators to increase ATM penetration in semi-urban and rural areas, boosting the financial inclusion agenda.

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