ATM shortage hits financial inclusion

A Reserve Bank circular on August 14, 2014, a day before the Prime Minister Narendra Modi announced his long cherished financial inclusion programme, Jan Dhan Yojna (PMJDY), for the country’s poor, may have gone unnoticed and unknown to the most unbanked citizens, but now 18 months later, it is acting as a spoiler to the spirit of the campaign as there is severe shortage of automated teller machines and ATM transaction fees for the common man are posing as the biggest challenge to the success of the ambitious financial inclusion scheme. The world’s biggest financial inclusion programme seems to have hit a bureaucratic hurdle after the initial excitement and excellent response from the country’s millions of unbanked small rural businessmen, artisans, and wage earners. Banks, including regional rural banks, seem to be losing interest in the project to the benefit of traditional private chit fund operators.

The success of the financial inclusion programme also poses a threat to thousands of Banks’ paid business correspondents (BCs) and business facilitators (BFs), who are incentivised to carry out transactions on behalf of banks in rural areas without bank branches. BFs are used to refer clients to banks. The latter is not authorised to transact on behalf of banks. The two services – BC and BF – were launched after a 2006 RBI circular under the UPA government, headed by Dr. Manmohan Singh. Incidentally, RBI can take a little credit for the introduction of BC and BF in the country. The system exists in other developing countries. And, the only country where it works with some good degree of success is Brazil.

RBI issued a circular stating that banks are now free to charge customers even if they use their own bank’s ATM. Until then, no transactions are charged for withdrawal of money from one’s own bank ATM. But, following the RBI circular, from November 1, 2014, banks were allowed to charge customers if one transacted more than five times a month at one’s own bank ATM. Also, the five free transactions on other banks’ ATMs, allowed earlier, were covered under the ambit of the revised RBI directive that made only three such transactions free. And, the transaction doesn’t necessarily have to be for money withdrawal; even for non-financial ones such as balance enquiry, cheque book request and mini statement request were included in this limit. If one crossed the limits, the maximum cost that one has to incur per excess transaction is Rs.20. Also, it has been left to the banks to decide if they want to charge a fee at all or not. Banks left the rich out of the ambit. The system is certainly not in line with the larger policy of the government providing cash subsidy under the direct benefit transfer (DBT) programme through individual bank accounts of the beneficiaries.

 The reduced number of free transactions at other banks’ ATMs is applicable only in six metro cities—Mumbai, New Delhi, Chennai, Kolkata, Bangalore, and Hyderabad. But the restriction on own-bank free transactions was made applicable throughout the country. The RBI asked banks to use messages, stickers or posters to enable customers to identify the status of the ATM regarding the availability of a number of free transactions. This, along with a severe shortage of ATMs across the country, is bringing down public footfall at ATMs. Paradoxically, though, high net worth individuals (HNIs) are still offered unlimited ATM transactions free of cost. Thus effectively, millions of ordinary savings bank account holders are being made to subsidise ATM transactions by the rich, some of whom are involved in robbing banks of lakhs of crores of rupees by defaulting on their loan repayments adding to banks’ non-performing assets (NPA).

Suffice it to say that ATMs and popularity of India’s own bank card, RuPay, hold the key to the success of the Prime Minister’s YDJ programme championing the cause of financial inclusion. As per Department of Financial Services records, there were some 21.61 crore accounts under YDJ programme until April 20, 2016, covering a total deposit of over Rs. 36,700 crores. The number of RuPay cards issued was 17.78 crore. Unfortunately, the initial high enthusiasm levels around the scheme are now missing because of the acute shortage of ATM machines and RBI-imposed restrictions on transactions. Going by the sheer enrolment number, YDJ has been a success. The total number of India’s banked population is around 46 crore. The unbanked population number is 40 crore. According to published data, the number of ATMs in India is only 2,18,000 servicing some 64 crore ATM cards and 2.25 crore credit cards. Although ATM transaction is increasingly gaining ground, especially after the introduction of PMYDJ and RuPay cards, the shortage of ATMs and transaction restriction are now dumping the sentiment.

India is said to have only 15 ATM machines per 1,00,000 adult population as against 39 in China and 153 in Japan. The country needs at least 2,00,000 more ATM machines immediately to keep pace with the demand under PMYDJ, DBT and more frequent use of RuPay card facility. The huge shortage of ATMs is also impacting the banks’ core business of commercial lending. At a stake is the success of the present government’s laudable financial inclusion programme. The success of the Aadhaar card enrolment and the government’s direct benefit transfer programme will depend on the easy accessibility to the cash by its beneficiaries through the banks. Ironically, few seem to be truly concerned about the poor man’s ability to reach the cash and transact cash freely as per his needs.