News

ATMs not a money-maker for India's banks

July 12, 2012

The good news: A report from market research firm AM Mindpower Solutions has said that the number of ATM terminals in India is expected to grow from 93,9800 in 2011 to 230,000 in 2015 — a compounded average growth rate of more than 25 percent.

The bad news: Indian banks are having a difficult time turning a profit on the machines they have now, according to a story by DNA India.

"Currently, if you calculate the electricity, property, maintenance and security costs, an ATM would cost about 50,000 rupees ($895.58) per month for a bank," a senior official from a private bank told the publication.

Given current fee structures, a bank would need to tally about 170 transactions per day per ATM. "The national average for daily transactions per ATM stands at about 125-130 day," the official said. "Then, how is this business profitable?"

To encourage banking outreach into unbanked areas of the country, India's finance ministry recently decided to outsource 63,000 new public sector bank ATMs to third party service providers.

The scheme calls for third party providers to operate and maintain the ATMs under bank brands, the DNA India report said. Banks then pay the providers a per-transaction interchange fee. The current fee charged to the card-issuing bank is 18 rupees (three cents).

Ostensibly, this would relieve public sector banks of much of the ATM cost burden. However, according to Ram Sangapure, general manager of Central Bank of India, banks put up to 25 percent of their ATM expenditure towards branding and visibility, costs that would not go away in the third party scheme.

For more on this topic, visit the bank/credit union research center.