RBI's Adjustment of ATM Interchange Fees
The Reserve Bank of India (RBI) has authourised an increase in ATM interchange fees. Financial transaction charges have been increased by Rs 2, and non-financial transaction charges have been increased by Re 1. These revisions will be effective from May 1st. It is anticipated that these adjustments will have a greater impact on smaller banks, particularly those with limited ATM network infrastructure.
Likely to Impact Customers:
Banks have not yet formally announced whether these increased interchange fees will be passed on to customers. However, past trends has shown that such costs are typically transferred to consumers. According to a senior bank official, previous instances of interchange fee revisions over the past decade have generally resulted in subsequent fee increases for customers. Therefore, a similar outcome is expected in this case.
Definition of Interchange Fee
An ATM interchange fee is a charge levied by a bank to another bank for the use of its ATM services. This fee, often calculated as a percentage of the transaction value, is typically incorporated into the customer's overall banking charges. The RBI last revised interchange fee was in June 2021.
The interchange fee for financial transactions, such as cash withdrawals, has been increased from Rs 17 to Rs 19. Similarly, the fee for non-financial transactions, such as balance inquiries, has been adjusted from Rs 6 to Rs 7.
Rationale for the Change
Sources indicate that the decision to approve this increase in interchange fees was communicated to banks and other stakeholders by the National Payments Corporation of India (NPCI) on March 13th. The NPCI had formally requested approval from the RBI to implement the proposed hike. It is understood that the interchange fee was increased in response to requests from white-label ATM operators, who reportedly faced financial challenges in sustaining operations under the previous fee structure.
Current Transaction Limits
Currently, bank customers in metropolitan areas are entitled to five free transactions per month at ATMs operated by other banks. In non-metropolitan areas, this limit is set at three free transactions per month. A spokes person from a mid-sized private bank noted that the increased interchange fees are likely to result in a significant additional financial burden for smaller banks. These banks face a dilemma: passing on the increased costs to customers could lead to customer dissatisfaction, while absorbing the costs would negatively affect their profitability.
