FinMin-backed ATM rollout plan hits a wall

Banks, ATM vendors grapple with operational, contract terms

The Union finance ministry-backed plan for expansion in public sector banks' Automated Teller Machines (ATMs) by March 2014 is stuck in various operational and commercial problems.

The plan was for 63,000 ATMs to be installed in 16 geographical regions, 33,000 during 2012-13 and 30,000 in 2013-14.

Bank executives and senior officials with ATM vendors said besides operational issues, the contract terms have turned out to be lopsided, with few obligations for banks. Plus, the intense competition to bag mandates led to ATM players quoting prices clearly unsustainable in the long term, they say.

ATM suppliers and vendors had installed about 20,000 of the machines by the end of 2012-13. Hence, they had to install another 43,000 by March 2014. Some of the vendors which had won mandates are AGS Transact, Mphasis, FIS and Tata Group.

A chief executive of the Indian arm of a multinational company with business interest in ATM, said they'd thought of bidding but after looking at the weak commercial viability, decided against it. "This is capital-intensive activity. With earnings much below the expenses, many of those who got mandates are bleeding," he said.

Banks perhaps saw the rollout as a cheaper way of expanding their network, as alternate channels' transaction costs are much less than those at branches. For ATM vendors and service providers, it was a business opportunity in the growing retail payments space.

Sunil Udupa, managing director at Securens, says the contracts signed between banks and ATM entities did not go into details about banks' commitment on how many cards were to be issued per ATM and the minimum level of transactions. Both are necessary for contracts to become commercially viable. As against this, vendors had to stand by specific commitments. The agreements were one-sided, he said.

The government asked Indian Banks' Association to hold a meeting of major lenders and ATM suppliers and vendors to sort the operational issues, said an executive with a Mumbai-based bank. He said officials of banks and ATM companies met in December. The issues were local in nature. The vendors and suppliers were asked to identify and sort issues at the respective clusters. ATM suppliers and vendors also raised issues about the contracts.
FALLING BEHIND SCHEDULE

• Plan was to install 63,000 plus ATMs by March 2014
• Some of those to get mandate: Tata group, FIS, Mphasis, AGS Transact
• With delays, banks had to start work on their own
• White label ATMs rollout is also in slow lane