RBI limits free use of inter-bank ATMs

Barely five months after the service charge on using automated teller machines (ATMs) of other banks was scrapped, it will be re-introduced if someone uses this facility more than five times a month, a high-ranking banking sector official said here on Friday. Also the Reserve Bank of India has said that not more than Rs 10,000 can be withdrawn each time they are used.

The apex bank has sent a communication in this regard to Indian Banks' Association (IBA) and this is expected to be implemented shortly, IBA Chief Executive K Ramakrishnan said.

The Indian Banks Association (IBA), the representative organisation of private and public sector banks in India, has proposed that instead of allowing an unlimited number of free transactions at another bank's ATM, there should be a limit of up to five free transactions a month.

"Beyond five transactions, we propose to levy a transaction fee of Rs.20 per transaction for using another bank's ATM," said IBA deputy chief executive K Unnikrishnan.

The Reserve Bank of India (RBI) has accepted the IBA proposal, but it will be implemented only by October, Unnikrishnan said on Friday.

An RBI spokesperson confirmed the development.

"It will be optional on the part of the banks to levy this charge on customers. We have not made it mandatory but left it to their (banks') discretion," Unnikrishnan said.

He explained that since the RBI's permission has been taken, it would not be improper on the part of banks to levy the charges if they wanted.

There are a little over 40,000 ATMs in India, of which nearly 30,000 are in urban centres and metros. The remaining 10,000 are in semi-urban centres with only a sprinkling in rural areas.

There are around 80 public sector, private, cooperative and foreign participating banks in the ATM network in the country.

After the ATM transactions fees on using other banks' ATMs was scrapped in April, the IBA studied the entire gamut of ATM transactions.

"We found that a majority of the ATM transactions were in the range of average withdrawals of Rs.3,500-4,000, and 90 percent of all transactions were below Rs.10,000. Hence, the intended purpose to serve the common man was achieved," Unnikrishnan said.

However, there was a small minority of users who withdrew very large sums on account of high card limits given by some banks to privileged customers.

At the other extreme, there were some customers who withdrew miniscule amounts, or made other kinds of inquiries. This created several logistics problems causing avoidable expenditure for banks at the cost of the common user, he said.

Taking into account these and related aspects, the IBA submitted a proposal to RBI last month.

"We shall give sufficient notice to the customers before implementing it, and individual banks can also inform their customers about the proposal and whether or not they would charge their customers. It will give time to effect suitable modifications in the ATM programmes to implement it," Unnikrishnan said.