ATMs slide into the shadows as digital transactions take centerstage

With the Covid-induced surge in UPI transactions now firmly here to stay, banks are rethinking their strategies - and costs - on ATMs, especially for off-site machines

Ram Sewak, a 42-year-old sugarcane farmer in western Uttar Pradesh, recently faced an all-too-familiar situation. In need of cash to pay his labourers, he visited two local automated teller machines (ATM), only to find one without cash and the other out of service. Ultimately, he had to travel to the nearest city to make his withdrawal. “Though I use UPI for most things, I still need cash for labour payments. In recent days, it’s become harder to find ATMs that work properly,” he said, reflecting a growing issue in India’s semi-urban and rural belts.

 

This ground reality was evident during a Business Standard visit across parts of Uttar Pradesh including Bulandshahr, Muzaffarnagar, and Meerut, as well as the Delhi-NCR region. ATM access is increasingly unreliable, and new installations are few and far between.

 

Though India’s currency to gross domestic product (GDP) ratio has recently declined from 14.4 per cent in 2020-21 to 12 per cent in 2023-24 as per Reserve Bank of India’s latest annual report, it has remained at the 2015-16 level, just before the demonetization exercise. This signals high dependency on cash in the Indian economy, despite the recent surge in digital transactions.

 

The trend also coincides with a decline in the number of ATMs across India. According to the Reserve Bank of India (RBI)’s latest data, at the end of financial year 2024, the total number of ATMs across India declined marginally to 2.53 lakh from 2.55 lakh the previous year. Public Sector Banks (PSBs) saw a reduction in both on-site and off-site ATMs. While the number of on-site ATMs fell from 78,777 in FY23 to 77,033 in FY24, off-site ATMs decreased from 59,646 to 57,661. In contrast, private banks increased their on-site presence from 41,426 to 45,438 but saw a small reduction in off-site ATMs from 35,549 to 34,446. Foreign banks reported minor fluctuations, while Small Finance Banks (SFBs) increased their total ATM count from 2,821 to 3,068. Payments banks recorded a significant decline, with all ATMs being shut down. White Label ATMs (WLAs), which are largely concentrated in rural and semi-urban areas, also dropped from 35,791 in 2023 to 34,602 in 2024.

 

Rising costs, fewer withdrawals

 

The rising operational cost of maintaining ATMs - including the real estate cost, cash handling, regular maintenance and software upgrades — is the key reason behind their reduced expansion. A senior banker explained that running a standalone ATM costs at least ₹40,000 per month in semi-urban areas, and up to ₹60,000 in urban locations, depending on rent and maintenance.

 

“If daily footfall drops below 100 transactions, it simply doesn’t make financial sense to run it,” the banker said. The economic viability of ATM operations is further complicated by shrinking cash withdrawals and increased preference for digital payments.

 

Sarvjit Singh Samra, managing director (MD) and chief executive officer (CEO) of Capital Small Finance Bank, confirmed the problem, particularly in the bank’s rural focus areas. “Footfall has definitely declined in recent years. Since our presence is significant in rural areas, managing costs is crucial. That’s why most of our ATMs are attached to branches rather than operating as separate units,” he said.

 

The declining footfall is also reflected in banks’ earnings. The State Bank of India (SBI), for example, saw its net income from ATM transactions fall from ₹435 crore in FY23 to ₹331 crore in FY24 — a drop of nearly 24 per cent. Similarly, Union Bank of India (UBI) loss from such operations widened from ₹195.88 crore to ₹203.87 crore over the same period.

 

A senior PSB official admitted that most banks are now reluctant to invest in expanding their ATM networks, given the growing dominance of digital transactions and the cost implications of maintaining these machines.

 

Ashok Chandra, MD and CEO of Punjab National Bank (PNB), added context to the shifting consumer behavior. “Today, most customers prefer to conduct their transactions from the comfort of their homes. While we’re maintaining our existing ATM infrastructure, footfall has clearly declined," he said. "In Delhi, for example, the average number of transactions per ATM is around 100 per day. In some areas, it’s even lower — between 50 and 100 daily. It’s difficult to sustain operations based on such limited usage.”

 

Chandra pointed out that the decline is particularly sharp when compared to pre-pandemic levels in 2019, especially in metro and semi-urban areas. He also revealed that the bank has not installed any new ATMs in the past year, except for those placed in new branch locations. “Outside of that, there’s been no fresh rollout across our network,” he said.

 

The RBI data also revealed disparities between urban and rural areas in ATM access. At the end of March 2024, PSBs and private banks accounted for 61.6 per cent and 36.5 per cent of all ATMs respectively. In metropolitan areas, the distribution was almost equal between the two sectors. However, in rural areas, PSBs operated 78.7 per cent of the ATMs, while WLAs accounted for the majority of machines in rural and semi-urban regions — over 83.9 per cent of total deployment.

 

A key trend seen in recent years is the decline of off-site ATMs. As of February 2024, there were 92,000 such ATMs in India, down from 95,000 in 2023 and stagnant from 92,000 in 2022. Some of the country’s largest banks -including Axis Bank, ICICI Bank, Indian Overseas Bank, Bank of Baroda, and Union Bank of India — have reduced their off-site ATM numbers, citing high costs and low returns.

 

ATMs vs digital banking

 

The story of ATMs in India is decades old. Introduced in 1987, they initially revolutionised banking convenience. For millennials, withdrawing money from an ATM became routine. Their Generation Z successors grew up with these machines as a normal part of everyday life. But now, as this younger generation enters adulthood, they are finding that ATMs are no longer as ubiquitous or dependable with the surge in digital payments through platforms like UPI and mobile wallets.

 

But on the deposit side, ATMs remain a handy tool, especially for smaller merchants.

 

“For us, ATMs were especially useful on weekends when banks are usually closed. Our market is closed on Tuesdays, so we typically deposit our daily cash on Sundays using ATMs with deposit facilities, but over the past year or so, such ATMs have become less available," said a shopkeeper from a Ghaziabad market, requesting anonymity. "As a result, we’ve had to return to the traditional method of depositing during working days. The number of ATMs has definitely come down, but their importance can’t be denied, even in the future. But it is also a fact that UPI has reduced the use of cash for us,” he added.

 

The rise of UPI and other digital platforms has fundamentally changed the way Indians transact. Even in villages, where digital literacy was once a barrier, smartphones and QR codes are now widely used. As cash usage falls and technology advances, banks are shifting resources accordingly. While ATMs will likely remain an essential service — especially for specific cash-based transactions — their scale and visibility may diminish in the coming years.

 

“The need for reliable access to cash remains in many parts of the country. In regions where banking penetration is low or digital connectivity is patchy, ATMs serve as a critical bridge. For now, banks are choosing to consolidate rather than expand. Instead of launching new standalone machines, most are focusing on efficiency and cost-saving, often by tying ATM deployments to new branch locations,” said a senior banker.

 

Pratik Shukla (name changed), 32, a software developer based in Noida, said: “These days, we often see ATMs shut down at night, whereas earlier they were considered a reliable emergency option. UPI has definitely reduced their importance, but other factors have also played a significant role in its importance for people like us in common use."

 

A question of survival

 

To make the ATMs a viable business for banks, the RBI recently increased the per-transaction fee for customers beyond the mandatory free transactions from ₹21 to ₹23 effective May 1. It also raised the interchange fees for withdrawals across banks.

 

Chandan Sinha, former executive director at the RBI, said it may be better for both large and small banks to outsource their ATM business by shifting from capital investments to revenue-based models, where they pay for the service rather than owning the ATM infrastructure. “If demand in certain pockets is low, banks can shift their ATMs to areas with higher demand. For large banks, while they may continue to run their own networks, they might even outsource due to the high costs involved — regular upgrades, cash handling, and software maintenance,” he added.

 

Sinha said while RBI has placed penalties on defunct ATMs, issues like the non-availability of smaller denominations of currency persist. “UPI is growing rapidly, but cash continues to play a crucial role in daily life, especially for certain segments. So while the shift toward digital is welcome, ATM availability and functionality remain important.”