Cash-Out At ATMs: Banks, Operators See RBI New Rules As Onerous
Banks and ATM operators see the Reserve Bank of India's planned penalties on cash-out at teller machines as onerous. The rules, they caution, could lead to banks further reducing the number of ATMs, particularly in far flung areas.
The regulator, in guidelines released on Aug. 10, 2021, said non-availability of cash in ATM machines for more than 10 hours in a month would attract a penalty of Rs 10,000 starting October. "A review of downtime of ATMs due to cash-outs was undertaken and it was observed that ATM operations affected by cash-outs lead to non-availability of cash and cause avoidable inconvenience to the members of the public," the RBI said.
The RBI has said the penalties would be levied on the bank which is meeting the cash requirement. The banks, however, can recover the penalties from operators of the ATMs.
The Confederation of ATM Industry— an industry representative body— sees the rules as “impossible," one of the directors at the body told BloombergQuint on the condition of anonymity. The industry has asked for a review of the penalty levy.
A public sector banker, who also spoke on condition of anonymity, said the it would be "extremely difficult" to limit cash out at ATM machines to 10 hours a month. The Indian Banks Association, too, is likely to seek a review of the rules, this person said.
Bankers may seek an extension for implementing the RBI's ATM downtime guidelines in light of the challenges, said Sunil Mehta, chief executive of Indian Banks' Association, adding that no formal representation has been made so far.
The guidelines will improve the efficiency of ATMs in some areas, making lives easier for customers... But banks will take a call on reducing the number of ATMs they service, depending on whether the less than 10 hours downtime can be maintained in some rural and semi-urban areas. These decisions will depend on banks as the penalty levy would reduce the business viability of ATMs if the downtime rules are not followed.Sunil Mehta. CEO, Indian Banks Association
A number of logistical challenges will come in the way of meeting the RBI's new benchmarks.
According to Pranay Jhaveri, president at CATMi, one such challenge is the restriction on cash movement. In an August 2018 notification, the Ministry of Home Affairs restricted loading of cash at ATMs after 9 p.m. in urban areas and after 6 p.m. in rural areas. In certain districts listed as "extremism affected", cash can only be loaded between 9 a.m. and 4 p.m.
“Even if we were to follow the RBI guidelines, the MHA guidelines restrict our ability to conduct emergency cash-outs late in the evening,” said Jhaveri. “So, if an ATM runs out of cash at 7 p.m., it can only be replenished the next day due to shortage of time at hand. By the time the cash-in-transit company transfers cash to the ATM, the bank would have already attracted a penalty of Rs. 10,000,” he said.
The existing infrastructure for cash replenishment at ATMs in semi-urban and rural areas does not allow for downtime of less than 10-hours, said Navroze Dastur, managing director at NCR India, one of the largest makers and operators of ATMs in the country.
“There are not many cash-in-transit companies that operate in remote areas, so there cash replenishment usually happens once or twice a week. Second, cash-in-transit companies usually do not get cash from banks early in the morning but by 11-12 p.m., leaving even lesser time at hand for moving cash to ATMs,” he said.
The other challenge, said Jhaveri, is the limited infrastructure of cash vaults in the country. “Many banks do not permit overnight vaulting, and therefore, cash has to be withdrawn from the bank’s currency chest every day,” he said.
In rural areas, the challenge is bigger as banks usually issue cash once deposits are collected. “Very often, banks are unable to give us cash in time, especially in the rural areas. In remote areas, they wait for cash deposits to come in and then they issue us cash. So by the time cash-in-transit company gets cash, it may be 2 p.m. in the afternoon, and in those areas, the time allowed for refilling ATMs is only until 4-6 p.m.,” said Jhaveri.
Another operational challenge, said Dastur, is the non-availability of higher denominations of currency. “When we request cash from banks, we do not get them in the denominations we want. Today, you hardly ever get Rs 2,000 banknotes. If I get higher denominations, the cash in the ATM would also last longer.”
The banker quoted above agreed with many of the challenges detailed by the ATM industry.
The guidelines will require banks to hoard larger amounts cash in their branches, this person said. The move may lead to a reduction in ATMs, especially in shopping malls, rural and semi-urban areas, where it takes longer to replenish cash, the banker said.
As of June 2021, there were 2.39 lakh ATMs in the country, rising marginally from 2.38 lakh ATMs at end-March 2021, according to the latest RBI data. Of these, 53% of ATMs are in metro and urban centers, while 47% are in semi-urban and rural areas.
The decision could “seriously inhibit” the expansion of ATM networks in the country, especially in the semi-urban and rural areas, said Jhaveri.
“We certainly believe that imposing penalties of this magnitude to drive improvement is not the solution to address cash-out issues. The penalties are as high as 25-30% of the revenues of WLA operators, and likewise for the MSPs (managed service providers),” he said.
Dastur said the new rules come at a time ATM operators are still overcoming the Covid-19 impact on their businesses.
“The quantum of penalty being levied is huge and unsustainable over a long period of time," said Dastur, adding that banks and ATM operators may move to reduce the number of ATMs, because it would no longer make any commercial sense.