Did RBI’s Credential Diminished?

Some days ago I came through an article in The Times Of India, front page and in-fact this was on most of the news channels, that RBI has changed rules regarding free usage of a third party ATM’s(not the same bank ATM in which we have account). Obviously this was important news but why RBI made this decision? For this I look up the history of transaction from a third party ATM.

When Did This Start

If you had remember, before April 1, 2009 we had to pay for transaction, printed statement or even for balance inquiry from third party ATM. Have you ever thought what were that charges and why we had to pay? The answer is simple when we use a third party ATM, our bank pays an interchange fee of Rs 18 to Rs 20 per transaction to the bank whose ATM we used.  This fee covers the expenses incurred by both banks when a customer of bank X usage ATM of bank Y. Earlier we had to pay, now our banks. So from April 1, 2009 one could make free transaction with other bank.

What Goes Wrong

Earlier very few banks were tied up with each other and the charges were nominal as compared to others. So RBI introduced a directive to the banks to allow free use of ATM machines irrespective of which bank a customer had accounts with. That means you can use third party ATM free of cost. But now your bank was paying around Rs 20 to the other bank per transaction and obviously the bank having more number of ATM will be used more. Why customer will go even 50 meters to use his bank’s ATM, since it is human psychology to feel more comfort.

So if a person withdrew even Rs 100, his bank had to bear this interchange fee every time, which became quite expensive. SBI has maximum number of ATMs in the country and recent survey shows that ICICI is loosing Rs 4-5 Cr per month due to this interchange fee only and most of the ICICI customer opt to use third party ATM, even ICICI is 2nd in number of ATMs. That means people are misusing this facility(or may be using sometimes),which made banks in loss.

Since the number of ATMs of individual bank are not same and varied largely, everyone knows banks will suffer loss due to this directive of RBI and one day it will have to be changed and finally they changed this. RBI is not supposed to do this when they are regulating one of the biggest economy in the world. Everywhere in the world do third party bank charges for each transaction of their ATM usage, even in U.S., one pays $3 per transaction and in Australia they charge bit more.

Earlier they want to make customers happy but now they have reached a decision to make both them happy, the banks and customers. Before few months ago banks put three demands to RBI:

1. Free usages of third party ATM should be restricted to limited number per month.
2. The transaction amount should be re-decided.
3. Minimum transaction amount from third party ATM should be Rs 1000.

What RBI Has Corrected Now

Recent announcement from RBI regarding free usages of ATM’s are changed and will be applicable from September 1, 2009. The new circular for transaction from third party ATM shows the free usages of third party ATM’s are restricted to five times in a month and the upper limit of Rs 10,000 per ATM withdrawal has been set. However they have rejected their demand of minimum Rs 1,000 withdrawal at a time, since India has a lot of low-cost customers and they will be affected badly.

This is the short middle ground which RBI has found to make both the customers and banks happy. So far the middle ground option choosen by RBI is concerned, the credential value of RBI will depend on time. Till then the public as well as the banking sector has to wait and watch.

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Tagged as: ATM, bank, RBI