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India's ATM installation rate lags despite renewed banknote availability

October 24, 2017

As banks in India place greater emphasis on digital transactions, the growth of ATM networks has seen a marked slowdown, according to a report by Hindu Business LIne.

Figures from the Reserve Bank of India show a rate of growth that has declined from 4,936 in the period from April to August 2016, to just 93 in the same period this year.

Meanwhile, the rate of installations for POS devices more than tripled from to 111,101 through the April–August period in 2016 to 353,281 in that timespan in 2017. POS, online and mobile transactions all trended upward during that time.

The article predictably ascribed the significant changes in growth to the government's demonetization of 200 and 500 rupee notes last November.

The removal of 87 percent of the nation's currency from circulation delivered a major blow to India's ATM industry, with providers unable to stock machines to meet their customers' demand for cash.

As an alternative, banks promoted digital transactions. As a result, ATM network growth has not rebounded with the availability of an adequate supply of banknotes.

At the end of August, India had 222,568 ATMs and 2,882,422 POS terminals, the article said.

Given that almost 87 per cent of the value of total notes in circulation were demonetized during the November 9-December 30, 2016 period, triggering a crunch in currency for transacting, banks seem to have shifted their attention away from ATMs to building up the PoS network in a big way.

Moreover, with re-monetization happening only gradually, bankers may not have felt the need to expand their ATM network. As per latest RBI data, the value of currency in circulation was 8.9 per cent less year-on-year at ₹16,00,190 crore as on October 6, 2017.

That there has been a substantial increase in digital transactions is underscored by the fact that in August 2017, the volume of credit card transactions at PoS rose to 11.533 crore (amounting to ₹36,299 crore) against 8.395 crore transactions (amounting to ₹25,746 crore in August 2016).

Similarly, the volume of debit card transactions at PoS jumped to 26.545 crore (amounting to ₹35,413 crore) against 13.054 crore transactions (amounting to ₹18,369 crore in August 2016).

"In fact, during the demonetization period, the government had announced a package of incentives and measures for the promotion of digital and cashless economy. So, all the banks were given a target. Hence, there was a substantial increase in the PoS infrastructure. That is the reason why it (PoS expansion) is still increasing.

"Given that digital transactions are being promoted, over a period, demand (for PoS) will only go up. Merchants have also realized that this is one of the better ways of doing transactions," said a senior public sector bank official.

The slowdown in ATM addition, according to the official, is also a consequence of banks’ digital push. "The emphasis is on a less-cash economy," he added.

Besides PoS, there was good traction in other digital banking channels. The central bank’s data show that the number of mobile banking transactions was higher at 9.964 crore (amounting to ₹79,913 crore) in August 2017 against 7.005 crore (amounting to ₹72,182 crore) in August 2016.

Further, the volume of transactions on mobile wallets soared to 22.543 crore (amounting to ₹7,262 crore) in August 2017 compared with 7.068 crore transactions (amounting to ₹3,074 crore).