Charging customers after 5 withdrawals from their bank ATMs is the worst possible decision

The Reserve Bank of India’s permission to banks to charge their customers for withdrawing from their own ATMs from the sixth time and beyond during the course of a calendar month is the worst possible retrograde step.

A person should be able to keep his finances under tight leash, and should normally be able to plan his monthly expenditure so as to be able to withdraw all that he needs for the month in one go. But that is not the issue, because people have different habits and some of them see safety in keeping cash at home strictly in accordance with their immediate needs.

The issue is: would the RBI dare to similarly discourage withdrawals from the cash counters of a bank given the fact that such manual dispensation of cash is more expensive for a bank, besides making everyone involved irritable? Apart from an occasional glitch, a customer has a hassle free experience is using ATMs.

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Serpentine queues in front of cash counters is a throwback to primitivism. Indeed it gives one the impression that a bank is under siege, having gone bust, and people therefore are making a beeline to withdraw. ATMs with their spatial spread makes for an orderly and convenient withdrawing experience. Through this mindless move, people would start queueing up before cashiers. The result will be more use of paper and paperwork.

The raison d’etre of an ATM is cost saving for a bank. Fixed costs predominate in operating a machine with variable cost per withdrawal being too small. In the event, why should the RBI have caved in to pressure brought about by banks to impose user charges for withdrawal beyond the fifth time?

Simultaneously, the RBI has reduced the number of free withdrawals from other banks’ ATMs located in Delhi, Mumbai, Kolkata, Chennai, Hyderabad and Bangalore from five a month to three. While there is some justification for discouraging the use of other banks’ ATMs in these cities given the mushrooming growth of own ATMs in these cities for most banks and given the fact banks have to pay the other banks Rs 20 per such withdrawal, there is none whatsoever for banks charging their own customers.

In fact, those who have been taking care to withdraw from the bank’s own ATM for reasons of safety (restoration is faster if money is not dispensed but account nevertheless debited) and as a matter of proud affinity, will henceforth go to other banks’ ATMs after exhausting their quota of five withdrawals from own ATMs. Eight free withdrawals per month should be ample for them – five from own and three from others. Our banks’ dream of making money squeamishly from savings account holders rather than from borrowers is thus destined to end in a fiasco.

It is amazing that we act against public interest with alacrity, but take years to name and shame a Kingfisher Airline as a willful defaulter. The truth is banks can make profits by pulling up their socks and girding their loins against the thinly disguised designs of borrowers. But in keeping with our national trait they have chosen to pluck the low hanging fruit or hit the weak and vulnerable when hitting out against the resourceful is challenging.

The RBI should sit up and ponder how ATMs came to proliferate in these six major cities. They proliferated in a spirit of me-too. Many small commercial complexes have five to six ATMs where one would do. The RBI should foster the concept of ATM share, a la telecom tower share or oil pipeline share, instead of squeamishly punishing the bank account holders. If all banks form an ATM company and own ATMs jointly outside of their own balance sheets, there would be considerable cost savings with ATMs being used optimally. Let the banks and the RBI not tilt at the windmills.