Why capping own ATM usage is not a good idea

Last Updated: Tue, Aug 19, 2014 13:31 hrs

RBI's decision to allow banks to cap free transactions in automated teller machines (ATM) at 5 for their own customers could be counter productive for the lenders. The demand – mainly from public sector banks, was long pending with RBI, which the banking regulator finally gave in.

The move is aimed at reducing cost for the bank as lenders argue it will discourage unnecessary transactions. The limit, that comes into effect from November 2014 in six metro cities includes both financial transactions like cash withdrawal and non-financial transactions like balance inquiry and check book request. Banks are allowed to charge maximum Rs 20 per transaction, from the sixth usage.

A bank incurs around Rs 50 if a customer visits a branch for any transaction. At the same time, the cost for the bank if a customer goes to the ATM, is one-fifth of what it incurs in a branch.
If cost was the issue for capping own bank ATM transactions, then branch visits should have been capped too, and at a lower level as the latter is more costly for banks.
However, that has not happened, as there is no such limit set by RBI while transacting through a bank branch.

Hence, the move will inevitably lead to customers flocking to the branches for all kind of services once they exhaust their ATM quota. This will not only increase the cost for the bank but also give rise to tremendous customer inconvenience.
Remember, public sector banks that have 70 per cent share of the 162,543 ATM network in India, is also facing enormous shortage of staff due to a rapidly retiring workforce. To maintain a good level of customer satisfaction with limited staff will be a herculean task for them.
Private banks, on the other hand, which have 30 per cent share (foreign banks' share is in decimals), may not be in a hurry to cap such transactions. This is mainly because those entities are keen to retain their customers who give them the float in the savings and current account. Barring State Bank of India and a few others, no public sector bank maintain share of current and savings account deposits – known as low cost deposits – like HDFC Bank or Axis Bank – the country's second and third largest private sector lenders respectively.
Public sector banks – which demanded such cap on free transactions- may not only end up incurring higher cost but also lose market share to their private sector counterparts if they restrict their own customers to use ATMs.

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