The Reserve Bank of India has approved an increase in ATM interchange fees, raising charges by Rs 2 for financial transactions and Re 1 for non-financial transactions. The revision, effective from May 1, is expected to have a more significant impact on smaller banks with a limited ATM network.
Banks have yet to decide whether to pass on the increased fees to customers, but past trends suggest that the additional cost will eventually be transferred. Over the last decade, each revision in interchange fees has resulted in higher charges for customers, and this time is expected to be no different.
An ATM interchange fee is a charge that a bank pays to another bank for providing ATM services. This fee, often bundled with the customer’s bill, is a percentage of the transaction amount. The last revision of these fees was made in June 2021.
The new structure increases the interchange fee for financial transactions such as cash withdrawals from Rs 17 to Rs 19. Non-financial transactions, including balance inquiries, will see an increase from Rs 6 to Rs 7.
The decision to revise interchange fees was communicated by the National Payments Corporation of India to banks and other stakeholders on March 13. The request for approval was submitted to the Reserve Bank of India before being implemented.
The hike comes after requests from white-label ATM operators, who have been struggling to sustain operations under the existing fee structure. Maintaining profitability has been a challenge for these operators, leading to the push for higher interchange fees.
Customers in metro areas are currently allowed five free transactions per month at ATMs of other banks, while those in non-metro locations receive three free transactions. Beyond these limits, banks charge additional fees.
Smaller banks with limited ATM networks are expected to bear a significant financial burden due to the increased interchange fees. For these banks, absorbing the additional cost would impact profitability, while passing it on to customers risks upsetting account holders. The decision on how to manage this increase remains a challenge for the banking sector.
