Human memory is short, but a small trigger can revive painful episodes. Exasperation at lengthening lines at automated teller machines (ATMs), a common experience these days, is a reminder of the currency-starved days right after demonetization in November 2016. But this time, it’s not cash that’s scarce, it’s the dispensers. According to the Reserve Bank of India (RBI), the number of ATMs across the country has shrunk over the past two years despite rising transactions done on these machines. The turning point appears to be early or mid 2017, which suggests that it’s the result of a policy swerve away from cash, rather than a response to market conditions. After all, domestic usage of cash, measured as a ratio of India’s gross domestic product, is largely back to its pre-demonetization level now. Clearly, the country is not rushing to go cashless.
According to RBI data, India had 222,066 operational ATMs as of March 2019. This is very few for a country of our size. A Bloomberg report published on Thursday in Mint refers to an International Monetary Fund chart for 2017 which shows that with only 22 ATMs for every 100,000 adults, India lags behind its BRICS peers on this count. Brazil has 107, Russia 164, China 81 (in 2016) and South Africa 68. And India’s figure looks set to fall further; between May and November 2017, as many as 1,782 ATMs were shut down. This is no big surprise. Some believe that cash dispensers are a thing of the past, now that transactions are moving online and mobile phones are turning into wallets for e-money. Indeed, with the rise of digital transactions, many bankers are inclined to believe that any further expense on these machines would be a waste. In any case, they are much too costly to put up, maintain and guard, which means they often act as a commercial drag. Since ATM usage charges in India range from negligible to low, they are not a revenue source. RBI-mandated interoperability has had an effect as well. Since bank customers can withdraw cash—by paying nothing or next to nothing as fees—from every ATM, regardless of which bank’s it is, banks no longer see it as a way to enhance customer service and differentiate their brands. This poses what the American economist Mancur Olson calls a “collective action dilemma" in his book The Logic Of Collective Action. Interoperability may have delivered the benefit of financial inclusion, but this has been at a cost borne by individual participants. This would have deterred participants from investing in ATMs. An added burden is a new set of RBI guidelines issued last year, which brought in new rules on matters like how to conduct cash-cassette swaps and which software standard must be adopted for dispensers. As a result, costs went up. Rather than upgrade machines, many banks are opting to trim their ATM networks.
In a banking sector that is largely state-controlled and short of market competition to begin with, it is hard to see banks making much of an effort to relieve people of ATM deprivation. Yet, it will be a long while before India—especially the rural yonder—is ready to go cashless. Maybe RBI and the banks it regulates need to rethink their approach to ATMs and try out micro dispensers to keep costs low. Cash isn’t about to vanish. Nor can it be forced out of circulation.