Cashless in ATM.

Cash crunch due to ATM issues, operator rates; PC claims it’s ghost of DeMon

Why are ATMs cashless more than a year after re-monetisation?

Agency Report | Mumbai/New Delhi | 18 April, 2018 | 10:00 PM

Many reasons have been cited for the cash crunch that's suddenly gripped parts of India. The authorities have said there's no shortage of cash, but ATMs do not have enough cash. It increasingly looks like demonetisation's aftereffect. The overall tardiness in recalibrating ATMs has come back to bite the government and the RBI. Former Finance Minister P. Chidambaram attacked the government and the RBI over the acute cash crunch in the country and said the ghost of demonetisation has come back to haunt them.

Bank customers may be hit as ATM operators have demanded higher “interchange rates” for ATM transactions to enable them to comply with recent stringent RBI guidelines, an industry body said here on Wednesday.

Presently, all banks charge a fee of Rs 15 for each cash and Rs 5 for all non-cash transactions from each other for use of their ATMs by other banks’ customers — which is recovered from the (user) customers — beyond the five minimum free transactions.

Now, the Confederation of ATM Industry (CATMi) has demanded that this should go up by at least Rs 3-5 per transaction to enable the (ATM) operators to recover their costs which have skyrocketed in recent times.

CATMi Director K. Srinivas said that recently the RBI has issued guidelines that will result in overall cost hike for the ATM service providers.

Among these, the RBI said banks must implement certain minimum standards in their arrangements with the service providers for cash management-related activities by July.

These include a minimum fleet size of 300 specifically fabricated cash vans (vehicles), a driver, two custodians and at least two gunmen for security, each vehicle must be GPS-enabled and monitored live with geo-fencing mapping with an additional indication of the nearest police station during an emergency.

Besides, the RBI stipulates that ATM operations should be performed only by certified personnel who have completed minimum hours of classroom learning and training among others.

“These can substantially increase the costs of operations for all the 19 CATMi members, and banks will have to pay for the costs of the increased compliance. Where there is a pay-per-use model, the issuer bank pays the increased per transaction fee for its cardholders transacting on other banks ATMs,” CATMi spokesperson V. Balasubramanian said.

Another RBI circular that has created concern pertains to banks considering using lockable cassettes in the ATMs which would be swapped at the time of cash replenishment in order to reduce risks involved in the existing method of open cash replenishment or top-up.

“There are more than 230,000 ATMs operational all over India, each with four cassettes to store the cash in denominations of Rs 2,000, Rs 500, Rs 100 and Rs 50. The swap of cassettes would entail a massive investment by the ATM service providers, as additional cassettes must be available for all ATMs instead of using the same cassette,” Balasubramanian said.

However, for this, the RBI has given time up to March 31, 2021, covering one-third of the ATMs each year till then, he added.

Though Srinivas welcomed the RBI guidelines, he urged the apex bank and the National Payments Council of India to immediately increase the interchange rates in order to make this viable for the ATM services industry.

“We are already burdened with higher costs of Euro Master Visa protocol and Biometrics implementation. Now, the added costs of cash management will make the operations unviable for Bank ATM operators and White Label ATM operators, and will force the closure of several ATMs.”

Another CATMi Director Himanshu Pujara said that an interchange rate below the cost of servicing each transaction would mean that expansion of ATMs to the semi-urban or rural areas could suffer.

“CATMi is in discussions with the RBI and the NPCI and hopes that a decision to increase the interchange rate is taken up on priority,” he said.

Presently, through the 230,000 ATMs, an average minimum of one million transactions of varying cash amounts take place daily, worth several thousands of crores of rupees.
Describing the recent reports of cash shortage in the country as “logic-defying”, state-run State Bank of India (SBI) said the possible reasons could be the declining income velocity of currency with the public in 2017-18 coupled with increased ATM withdrawals during the second half of last fiscal.

An SBI Ecowrap report authored by Chief Economist Soumya Kanti Ghosh said that currency in circulation in the economy had reached Rs 18.29 lakh crore by March 2018, surpassing its pre-demonetisation level of Rs 17.98 lakh crore.

Blaming “unusual demand” for currency shortages in some areas, the government on Tuesday announced it has decided to increase printing of Rs 500 notes by five times.

“The recent reports of cash shortage appear intriguing and defy logic. However, there are a couple of trends that beg explanation and may be the possible reasons for such apparent trend,” the SBI report said.

“First, income velocity (of currency with public) has been on a declining trend in FY18, particularly in the second half. This indicates possibly currency of the higher denomination Rs 2,000 is not getting adequately circulated in the economy.

“Our internal estimates suggest that in states like Bihar, Gujarat and the southern states, the income velocity is far less than the national average,” Ghosh said.

Juxtaposing this trend with the ATM withdrawals, he said that during the second half 2017-18, ATM withdrawals increased by 12.2 per cent, as compared to the first half.

“This growth was much higher compared to FY16 or FY15 and even the 5-year average (8.2 per cent during FY12 to FY16),” the report said.

“We believe, there has been a forced shift in currency composition with more of smaller denomination notes in circulation now.”

Ecowrap pointed out there was no Rs 200 denomination note during remonetisation in 2017.

“However in FY18, the pace of circulating Rs 200 denomination increased manifold, as has happened with notes of smaller denomination.

“This may have altered the demand for smaller denomination notes in a larger way to possibly substitute (more transactions) for the currency of larger denominations which are getting less. As ATMs have to be replenished more frequently, it can lead to the conjecture that cash is not available,” it said.

“Additionally, a heightened economic activity beginning Q4 of FY18 has meant that the demand for the working capital cycle has changed for the better resulting in more usage of cash for transactional purposes. This may have also prompted more withdrawals,” it added.

Regarding the availability of cash with the country’s largest lender, SBI Chief Operating Officer Neeraj Vyas said in a statement that the situation had improved over the last 24 hours.

“Efforts are being made on a continuous basis to improve the cash availability further in a few geographies. The overall issue of less cash should come to normalcy within soonest possible time,” he said.
Former Finance Minister P. Chidambaram attacked the government and the RBI over the acute cash crunch in the country and said the ghost of demonetization has come back to haunt them.

He also needled the government on the recent bank scams, saying people appeared to have lost confidence in banks.

“I suspect ordinary people are withdrawing cash but not putting back into the banks their surplus cash. It is possible that there is some loss of confidence in the banking system, thanks to the bank scams.

“After demonetizing 500 and 1,000 rupee notes, the government printed Rs 2,000 notes! Now, the government is complaining that Rs 2,000 notes are being hoarded!! We always knew that Rs 2,000 notes were printed only to help hoarders.

“The ghost of demonetization has come back to haunt the government/RBI. Why are ATMs still being re-calibrated even 17 months after the demonetization?” Chidambaram said in a series of tweets on the reported shortage of money in banks in some states.

“Cash is back with a vengeance,” says Navrose Dastur, MD, NCR Corp, India. “I support digitization, but the government cannot force the pace of digitization or arbitrarily reduce the supply of cash.

“Is it correct that currency in circulation has increased by only 2.75 per cent since demonetization? If so, I maintain that government/RBI are not allowing the money supply to grow at the same rate as the nominal GDP.

“I also suspect that RBI seriously miscalculated demand for cash in the post-harvest season,” he said.

“RBI’s statement is unsatisfactory. If RBI has printed and supplied sufficient cash, it must explain why there is a cash shortage.”

The RBI on Tuesday said that there is “sufficient cash” in its vaults and currency chests and it is “taking steps to move currency to areas” which have witnessed unusually large cash withdrawals. (IANS)