The Reserve Bank of India (RBI) 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 May 1, is expected to have a greater impact on smaller banks with limited ATM network.
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Banks have not yet decided on whether to pass on the increased interchange fees to customers, but discussions indicate that customers will eventually bear the brunt. “Whenever interchange fees were revised over the past 10 years, banks always passed the changes on to customers. This time will be no different, and banks are expected to hike fees for customers,” said a senior bank official.
An ATM interchange fee is a charge that a bank pays to another bank to use ATM services; this fee is usually a percentage of the transaction and is often bundled with the customer’s bill.
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The RBI previously revised interchange fees in June 2021.
The interchange fee for financial transactions, such as cash withdrawals, has been increased to Rs 19 from Rs 17, while that for non-financial transactions, such as balance enquiries, has been raised from Rs 6 to Rs 7.
“The decision to allow an increase in interchange fees was communicated by the National Payments Corporation of India (NPCI) to banks and other stakeholders on March 13,” said a source. “NPCI had requested an approval from the RBI to implement the hike in interchange fees,” the source added.
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According to sources, the interchange fee was hiked following requests from white-label ATM operators who had been finding it financially difficult to run operations under the current fee structure.
At present, a bank customer in metro areas is eligible for five free transactions per month on ATMs of other banks, while in non-metro areas, free transactions are capped at three.
“The additional payout from small banks to other banks due to the increased interchange fees is likely to be significant,” said a senior official of a mid-sized private bank. “It’s a difficult situation for banks with limited ATM network. This is because if they pass on the hike, it will upset customers, and absorbing this hike will hurt profitability.”
