Lack of ATMs could derail Jan Dhan Yojana

Despite the rising need for more ATM machines across the country, the government’s financial inclusion scheme Pradhan Mantri Jan Dhan Yojana (PMJDY) is yet to see an uptake in ATM deployments.

Banks and ATM operators say that low interchange fee and cap on the number of free ATM transactions are making it an unviable proposition.

CATMi (Confederation of ATM Industry), an association of companies that deploy ATMs for banks, has warned that accounts being opened under the PMJDY would end up being dormant if there are not enough ATMs to service them.

According to the latest data, under PMJDY, banks have opened 8.83 crore accounts and issued 5.85 crore RuPay cards. Logically, an increased number of cards should also result in an increase in ATMs. However, ATM deployment has been running out of steam. New machines are seeing daily transactions of less than 100 — way below the 120 transactions that are required for break-even.

ATM operators and banks are worried that the existing interchange fee is too low for them to sustain the business model making it difficult to deploy more ATMs. Annual growth in the banks’ ATM network slowed down to a meagre 1 per cent in April to June quarter compared to the corresponding quarter in 2013. As of June 2014, the total number of ATMs in the country stood at 1.67 lakh and Point-of-Sale terminals at 1.08 crore.

“Lot of good work has been done in terms of opening accounts and issuing cards. However, not much is done to make use of those cards and accounts. In a way, we are issuing a lot of cards but there is no place to use it as a lot of players have slowed down ATM deployment,” said Sanjeev Patel, CEO, Tata Communications Payment Solutions, an ATM service provider.

According to recently-released report by Deloitte and CII, more than 20,000 new ATMs would be required in the first phase of the Yojana (from August 15, 2014 to August 14, 2015).

Banks such as State Bank of India, ICICI Bank, HDFC Bank and Axis Bank have limited the number of free transactions on ATMs. SBI and a few other banks have waived off fees to customers with a decent balance while those with less balance will be charged.

According to Patel, “Aren’t those with less or no balance, the ones who need financial inclusion more than anyone? Also, these people will anyways need less money to withdraw and these include urban poor.”

Experts fear that additional costs to customers while accessing their small value amounts can drive them away from the formal banking routes.

Vibha Batra, Co-Head Financial Sector Ratings, ICRA, said, “The ATM expansion is dense in the urban areas so the number of transactions per ATM may be less. In the rural areas, the per account deposits average around ₹3,000-5,000 and also the number of transactions per ATM is less along with low value transactions.”

Things could, however, change with two new banks – IDFC and Bandhan Financial Services – due to be set up next year. The upcoming payment and small banks will also require adequate cash transfer and payment infrastructure in place in the next 2-3 years. This will also create the need for more alternative channel of banking services.