IBA wants free use of third-party ATMs limited to two withdrawals per month

Using ATMs for withdrawal of cash could become costly for saving account holders in urban areas if the Reserve Bank of India (RBI) approves a proposal by the Indian Banks Association (IBA) to limit customer transactions through third-party ATMs to two from five a month at present, according to newspaper reports.

At present, holders of savings accounts enjoy five free transactions per month at the ATMs of banks other than their own, while there is no such limit for use of own-bank ATMs.

IBA had, in January, recommended a change to include all the ATM transactions, including the own-bank ones, to 5 per month in view of the rising costs of maintaining ATMs in view of the additional security measures being put in place following the Bangalore incident wherein a lady was brutally attacked at the ATM

In the rural areas, however, the RBI has asked banks to continue with the existing facility.

There is also a demand by ATM-deploying banks to raise the inter-bank interchange fee raised from the current Rs15 per use, although other banks whose card issuances are disproportionate to their ATM networks want the fee capped at Rs15 as otherwise they would end up paying more.

Industry sources said that if the inter-bank interchange fee goes up by around 10 per cent, it would incentivise further deployment of machines.

"From the customer point of view, the existing regime should continue. For the market to develop, the freedom of ATM operators - including white-label ATM operators - should not be restricted and price points should not be dictated by inter-bank interchange charges," said an ATM-deploying company executive.

Access to third-party ATMs (machines other than those installed by the home bank) was made free in April 2009. However, following a representation from banks, RBI agreed to cap the number of free withdrawals to five a month and limited the total cash withdrawal to Rs10,000 from third-party ATMs. Although the transactions were free for customers, each bank paid the ATM-owning bank Rs18 per transaction for use of its machines.

There was also a surge in installation of 'brown label ATMs', where technology companies made investments on behalf of banks and collected rent. In the last three years, the number of ATMs has more than doubled to 1,62,543 from 74,355.

Banks net off transactions at the end of the month between themselves and pay Rs. 15 per transactions plus taxes to each other irrespective of whether a withdrawal was within the limit in case of customers involved.

Public sector banks had a combined 72,340 branches, of which 37,672 had onsite ATMs, as of March 2013.