With the use of third-party automated teller machines going to be free from April 1, banks -- both large and small -- are bracing up for the change.
For larger players such as State Bank of India, ICICI Bank, HDFC Bank and Axis Bank, the shift would mean higher revenues as customers would tend to use the nearest ATM. Smaller banks, which already allow their account holders to access any ATM without having to pay a transaction charge, fear that the bigger players, sensing an opportunity, may increase the inter-change fee over the next six months or so.
"In the long run, the nature of the inter-change agreements that banks enter into may also change," said a senior executive of a bank having the highest number of ATMs.
"For sustainable ATM deployment to continue, it would be imperative that the inter-change fees be maintained at the current levels," said Aspy Engineer, vice-president for alternate channels, Axis Bank.
Besides, plans are afoot to launch white-label ATMs where banks are free to levy a fee.
According to estimates, the average cost of setting up an ATM in urban centres is Rs 7-8 lakh (Rs 700,000-800,000) and the monthly cost of operating it comes to around Rs 50,000-60,000. If the inter-change fee falls below a certain level, it will not be feasible for banks to increase the deployment of ATMs, says an executive with a bank with a larger ATM footprint.
Banks that own ATMs charge an inter-change fee for providing the facility to the customers of other banks. The fee depends on the terms of bilateral and multilateral arrangements banks enter into with each other. Banks with larger ATM networks treat the inter-change fee as an important stream of revenue.
"We expect our inter-change transactions to increase by 10-15 per cent and the number of transactions involving our customers using other ATMs may increase by 7-10 per cent," said Axis Bank's Engineer. At present, the bank has four times as many outside customers using its ATMs as the number of its customers using other ATMs.
"We have over 3,500 ATMs and we will be a net acquirer when the new ATM rule comes into force. Inter-change fees will continue to show a downward trend. But we expect the increase in the number of inter-change transactions from our ATMs to more than make up for the decrease in revenue due to lower inter-change fees. Our ATM roll-out strategy will continue as planned," said Sanjeev Patel, head of direct banking channels, HDFC Bank.
While the smaller private sector banks are increasingly looking at riding piggyback on the networks of the larger players, public sector banks, which do not have a large presence at present, are going ahead with plans to expand their footprint across the country.
For instance, Union Bank of India Chairman and Managing Director M V Nair said the bank intended to add 500 ATMs in 2009-10, especially at new branches. "The ultimate plan is to cover talukas and the remaining 100 districts in the country," he said.
"The inter-change fee will be a key factor, but the cost of transacting business through an ATM is significantly lower than through a branch, so we will continue to expand our ATM business," said George Joseph, chairman and managing director, Syndicate Bank, which has a network of 1,050 ATMs.
IndusInd Bank Managing Director and CEO Ramesh Sobti said that free-market principles would define the nature of the ATM business in the months ahead.
"Banks will have to see if it makes more sense to buy ATM services or own ATMs. It may be more feasible for banks with smaller networks to pay for ATM transactions rather than roll out their own," he said.
Besides, Standard Chartered and Yes Bank, which have allowed a majority of their customers to use other ATMs without a charge, say the cost will not be too high.
Sai Narain CDK, head of transaction banking at Standard Chartered, expects expenses to go up by around Rs 20 lakh (Rs 2 million) a month. The bank has 246 ATMs in India and intends to add 30 more.
In fact, Ravishankar, head of direct banking at Yes Bank, which has 170 ATMs at present, expects some revenue to flow in as customers of other banks will start using its ATMs.
Players such as Federal Bank, which has 613 ATMs, with a bulk of them in Kerala, however, fear the hit to come from the no-frills accounts, where there is no minimum average balance requirement.
"Banks which offer ATM cards to its no-frills account holders might be forced to put restrictions on usage of savings account cards and even cut back on issuance of no-frills cards," said the bank's general manager T S Jagadeesan.
