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The Reserve Bank of India (RBI) has announced an increase in ATM interchange fees, set to take effect from 1 May. The increment will see charges for financial transactions raised by Rs 2 and for non-financial transactions by Rs 1.
This change is expected to hit smaller banks with a limited ATM network particularly hard. Though banks have not formally decided whether to pass the higher interchange fees onto their customers, historical trends suggest this is likely to happen.
“Over the past decade, banks have consistently passed these costs onto customers whenever interchange fees have risen. This instance appears to be no different, and similar changes in customer fees are expected,” said a senior banking official.
Understanding Interchange Fees:
An ATM interchange fee is charged when a bank's customer uses another bank's ATM. This fee is typically included in the customer's overall bill. The last adjustment by the RBI occurred in June 2021.
The revised rates mean that financial transactions like cash withdrawals will now cost Rs 19 instead of Rs 17, while non-financial activities such as balance inquiries will increase to Rs 7 from Rs 6.
“This decision was communicated to banks and other stakeholders by the National Payments Corporation of India (NPCI) on 13 March,” an informed source disclosed.
“The NPCI approached the RBI for approval to enact this increase,” the source added.
Rationale Behind the Fee Increase:
It is understood that this adjustment followed appeals from white-label ATM operators facing financial difficulties under the previous fee structure. Currently, in metropolitan areas, customers are allowed five free transactions per month at another bank’s ATMs, whereas, in non-metropolitan areas, the limit is three.
“The incremental costs for smaller banks paying fees to other banks due to the increased interchange fees are expected to be considerable,” explained a senior official from a mid-sized private bank.
“Smaller banks face a dilemma: passing on the fee increase may upset customers, while absorbing it could detrimentally impact their profitability,” he added.
