Expand rural ATM network to enable subsidy, entitlement transfers: Govt tells public sector banks

K. Ram KumarPriya Nair Updated - September 11, 2011 at 10:18 PM.

RURAL THRUST

With financial inclusion being one of the top social agendas of the UPA Government, the ATM procurement process by public sector banks is likely to undergo a sea change. The Finance Ministry has asked public sector banks to work out the modalities of joint sourcing of ATMs, State/district wise.

The idea behind the joint sourcing of ATMs is to drive down the cost of procurement through economies of scale and also encourage banks to set up ATMs in unbanked rural areas. This is also expected to lead to lowering of the cost of transactions.

There has been a mushroom growth of ATMs in metro and urban areas as banks have been given the freedom by the Reserve Bank of India to set them up at any location of their choice.

However, penetration of ATMs in rural areas leaves a lot to be desired as low transaction volume makes it unviable to set them up there.

Even as banks are implementing their financial inclusion plans at a furious pace, the government wants public sector banks to also expand ATMs in rural areas so that the rural folks can withdraw the subsidy and entitlement transfers given by the Central Government, which add up to over Rs 2 lakh crore annually. The potential volume of business should encourage banks to expand their rural ATM network.

“It is likely that according to the joint sourcing procedure being worked out by the Indian Banks' Association, procurement of ATMs would be done either at the State or district level. This will reduce the cost of procurement for banks as volumes will higher,” said a senior public sector bank official.

Currently, the procurement price of ATMs, depending on the size of order, varies between Rs 4-5 lakh and Rs 6-7 lakh an ATM. The government wants public sector banks to drive a collective bargain with ATM vendors so that procurement costs come down drastically.

If banks don't expand ATM network in rural areas on their own, then bankers fear that the Government could get the RBI to issue a fiat, allowing them to open ATMs in metro and urban centres only if they open at least a certain percentage of new ATMs in rural areas.

The power of collective bargaining is underscored by the fact that the cost of hiring VSATs (very small aperture terminals) from service providers has come down from Rs 30,000 a VSAT a month a bank branch a few years ago to Rs 12,500 now.

Bank branches in remote areas of the North-East are now able to establish wireless connectivity with the core banking solution platform of their bank via satellite, facilitating banking transactions for the rural populace.

Published on September 11, 2011 16:45