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Fears of 50% ATM closure raises DeMo fears, regulatory intervention needed

This week banking consumers received a warning that 50 percent of existing ATMs in the country were set to shut down next year.

These brought back demonetisation jitters among many, with the fear of a likely cash crunch if the reason for closure was not addressed.

ATMs, or automated teller machines, are one of the most used digital banking channels in the country.

On November 21, the Confederation of ATM industry (CATMi) warned that nearly half of the 2.38 lakh machines run the risk of closing down due to regulatory compliance changes making the business unviable due to rising costs and dipping or stagnant revenues.

Some fear this could lead to more visits to bank branches or hoarding of cash at home as ATMs are frequently used by depositors. Not all depositors are savvy and comfortable with internet and mobile banking as they are with ATMs.

The industry body said recent regulatory changes mandated by the Reserve Bank of India (RBI) to make hardware and software upgrades, coupled with complying with cash management standards and the cassette swap method of loading cash, will make ATM operations unviable, resulting in their closure.

It is estimated that new cash logistics and cassette swap method will alone result in costs of Rs 3,000 crore for the industry.

 

New ATM installations dip
Over the last two years, there has also been a reduction in the number of new ATMs installations this year.

In April, the central bank had asked banks and ATM operators to tighten regulations to prevent rising fraudulent activity apart from its larger goal to contain bad loans. However, neither banks nor ATM operators are happy with RBI’s mandate.

“There is a need for the banks, managed service providers and the regulators to discuss and resolve the issues, just like we had done during demonetisation,” said Navroz Dastur, Managing Director, NCR, told PTI.

Cash is kingDastur warned that cash is back in the system and cash worth over 26 percent of GDP is routed through the ATM network at present. “We cannot afford any disruption in ATMs,” he said.

As per RBI data, cash withdrawals from ATMs grew 8 percent to Rs 2.75 lakh crore in August, up from Rs 2.54 lakh crore in October 2016.

According to data from the RBI, the amount of currency in circulation rose to Rs 19.6 lakh crore as on October 26, a 9.5 percent growth from two years back.

CATMi said the 50 percent shutdown of ATMs could affect many jobs and beneficiaries under the Pradhan Mantri Jan Dhan Yojana for those who withdraw subsidies in the form of cash through ATMs.

The Indian Banks’ Association (IBA) had also requested the RBI to relax norms or extend the deadline for cash management, but the central bank has remained adamant so far.

As the industry has raised the debate by instilling ATM closure fears, an intervention from the regulator, National Payments Corporation of India (NPCI, which manages the interchange fee), or the Finance Ministry may be the need of the hour.