Free non-home bank ATM transactions may be cut to two

Bankers demand hike in interchange fee

The number of free transactions at non-home branch automated teller machines (ATMs) will be reduced to two from five, if RBI accepts the demand of bankers. Non-home branch ATM refers to ATMs of banks in which the customer does not have a bank account.

Banks, in association with the National Payments Corporation of India, have  sent a proposal to the banking regulator to reduce the number of free transactions at non-home branch ATMs. Currently, consumers are allowed five free transactions at non-home bank branch ATMs.

Banks have also requested the interchange fee — the amount one bank charges the other bank if its consumer uses the ATM of  its non-home bank — to be revised. Currently, the fee is Rs 15 per financial transaction. This has been recommended to be revised to Rs 16.50 plus service tax (12 per cent) which will take the amount to Rs 18.48.

So, essentially, it is a fee that the customer’s bank pays to the one that maintains the ATM. The first five transactions at other ATMs are free and after this, the bank can choose to pass on the cost to the consumer. But according to RBI's mandate, banks cannot charge consumers more than Rs 20.

“We have presented a proposal to RBI and the regulator is discussing it with the banks at the moment. Earlier, banks had asked the interchange fee to be revised to Rs 18 plus service tax but not all banks agreed to it. So finally we have agreed on Rs 16.50 but this is provided that the number of free transaction comes down. Banks have agreed that it is then that the new structure is feasible,” said a member, who is part of the committee that has submitted the recommendation, requesting anonymity.

Since the public sector banks find the increase to Rs 18 plus service tax very steep, the earlier proposal had to be revised.

Bankers said public sector lenders are the ones that have been working to keep the interchange fee low whereas the private sector banks had been lobbying for an increase. “This is because state-run banks are generally the issuer banks (the one that issues the card) and the private sector banks in most cases are the acquirer bank (the non-home bank ATM the consumer uses). Therefore, they had been requesting for a revision in the interchange fee,” said an industry expert.

This demand for the rise in interchange fee started after banks came under pressure to beef up security at ATMs, after the attack on a woman in Bangalore last year. Lenders complain that the increased security will translate into increased cost and therefore in order to stay profitable, the interchange fee should be increased.