Free inter-bank ATM withdrawals
March 16, 2008
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I also write technical articles here
RBI directed all the banks to make the inter-bank ATM balance inquiries free after 1st April 2008. RBI has also directed to make inter-bank ATM withdrawals free after 1st April 2009. The former move seems appealing though the later needs a second thought as it poses a lot of operations issues. These issues need to be addressed before making this move effective.
I’m not sure how banks settle the inter-bank ATM withdrawals now. The process must need extra work on part of both the banks involved in the withdrawal. Also the process may not be as standardized as the one for clearing of the cheques. When the inter-bank ATM withdrawals will become free, volume of such transactions will be very high given the fact that ATMs of all the banks are not uniformly distributed in any of the city in India. So no one will find the ATMs of all the banks in the near vicinity. And when the withdrawals from any ATM won’t charge anything, why would someone go for hunting for their own bank’s ATM. This high volume of such transactions needs a very precise and thoroughly scrutinized process of settlement between the banks. There also will be a need to dispute settlement authorities. RBI needs to think of these issues in the next 12 months.
Pushing our thoughts a little deeper, another issue comes to my mind. Handing of such a high inter-bank ATM withdrawal transactions will require the banks to deploy more man power and that’s going to cost them extra money. Currently the cost of handling these transactions may be covered by the inter-bank ATM withdrawal charges. With these charges no more applicable, banks profit margins will be hit. In such a scenario, the deposit/loan rates may get impacted depending on the volume of such transactions.
Another issue that may arise is the opening of new ATMs. If a bank’s customer can freely use any bank’s ATM, then why would a bank open new ATM? The long queues outside any bank’s ATM definitely call for opening of lot of new ATMs. Also remote and outskirts parts of the city lack the availability of the ATMs. The new move by RBI may deprive them of the new ATMs for some time to come.
The security of ATM transactions is also of utmost importance. A few years back I had used by ICICI ATM card in a SBI ATM and the machine never asked me for a PIN. Such security loopholes will lead to increased ATM crimes. Do we have any norms as to which bank is liable for the loss in case of ATM crime happening because of the security lapses during inter-bank ATM withdrawals?
RBI definitely has a lot of homework to do in the next 12 months if they don’t to miss their deadline for making inter-bank ATM withdrawals free. And RBI will be successful in coming up with a effective policy and laws to address all such issues then common man will be more than happy.
March 16, 2008 at 2:50 pm
[...] oro wrote an interesting post today onHere’s a quick excerptRBI directed all the banks to make the inter-bank ATM balance inquiries free after 1st April 2008. RBI has also directed to make inter-bank ATM withdrawals free after 1st April 2009. The former move seems appealing though the later … [...]
March 16, 2008 at 3:10 pm
he he “SBI ATM never asked for a PIN”! sounds very SBIish
And I don’t think ‘inter-bank ATM withdrawal transactions will require lot of man power’
March 16, 2008 at 6:18 pm
There will definitely be termination charges payable to the bank whose ATM the customer will use, however low those might be. It then will depend on the bank to either choose to setup new ATMs or to absorb the termination charges. Let the market forces decide it. I welcome this step by RBI.
March 16, 2008 at 6:49 pm
Rams,
However SBIish it may sound, its true and I was surprised and shocked.
Thanks for dropping in.
March 16, 2008 at 6:51 pm
Abhijeet,
That would be a welcome move. But then what market forces are we talking about here? In a market dominated only by top few banks, what market forces will play a role?
March 17, 2008 at 5:52 am
I think a better alternative would be to make it mandatory for the banks to privide this facility on a case to case basis. By that what I mean is that the banks can put a condition like if the balance is maintained above some value, then the customer could use this facility or he/she will be charged (nominal) for a cross bank withdrawal.
The banks already provide this facility for some speacial types of accounts. They could extend it to the all the accounts with this codition.
March 17, 2008 at 12:04 pm
There is only way to implement it effectively, RBI should take owenership of all ATMs (or form some central ATM operating body) and should charge other banks for transactions.
March 19, 2008 at 1:14 pm
Suhas, Nice post. This facility is there for corporate accounts since long back. By corporate accounts I mean salary accounts… This transition of money happen through interchange like visa, dinners, master card, etc…
March 19, 2009 at 3:47 am
it is excellent decision. to develop banking habits, rbi has taken a good proactive step. but it should be implemented from 1st april,2009 as promised by rbi
March 19, 2009 at 3:52 am
very good decision.in abroad, anybody can take cash from any banks atm, banks may share the network cost.here we find so many atms, but we cannot take cash because of charges. it should be implemented immediately.