The Reserve Bank of India (RBI) has approved a revision in ATM interchange fees, increasing charges by ₹2 for financial transactions and ₹1 for non-financial transactions. This change, set to take effect from May 1, is expected to have a greater financial impact on smaller banks with a limited ATM network.
Potential Cost Burden on Customers
While banks have yet to decide whether to pass on the increased interchange fees to customers, industry experts suggest that customers will eventually bear the additional costs. A senior banking official noted that every interchange fee revision in the past decade has led to increased charges for customers, and this time is expected to be no different.
Understanding ATM Interchange Fees
An ATM interchange fee is the charge a bank pays to another bank when its customers use an ATM outside its network. This cost is typically bundled into customer transaction fees. The RBI last revised these fees in June 2021.
New Fee Structure
- Financial transaction fees (e.g., cash withdrawals) will rise from ₹17 to ₹19.
- Non-financial transaction fees (e.g., balance inquiries) will increase from ₹6 to ₹7.
The National Payments Corporation of India (NPCI) informed banks and stakeholders about the fee revision on March 13. The fee hike was implemented following requests from white-label ATM operators, who had been struggling with financial viability under the existing fee structure.
Impact on Small Banks
Currently, bank customers in metro areas are allowed five free transactions per month at ATMs of other banks, while in non-metro areas, the limit is three.
Smaller banks with fewer ATMs are expected to be significantly affected, as they will have to pay higher fees to other banks when their customers use external ATMs. A senior official from a mid-sized private bank explained that banks face a dilemma—passing on the increased cost may upset customers, while absorbing the hike could hurt profitability.
With these changes set to take effect soon, banks will need to carefully evaluate their pricing strategies while customers await clarity on whether they will face higher ATM withdrawal charges.
