Business - India;Banks go slow on ATM expansion

Anirudh Laskar

Indian banks, especially small, private sector lenders, are curtailing their ATM expansion plans as the Reserve Bank of India (RBI) mandates every bank to withdraw all third-party ATM transaction charges from April 2009 onwards. The RBI norms will enable small banks to benefit from low-cost, switch-enabled ATM services without opting for expensive bilateral tie-ups.

“The rationale for opening new ATMs has got neutralised as the transaction charges are made free, irrespective of the bank, whose ATM is used. Our priority is to increase our branch network now, rather than ATMs,” said Rana Kapoor, managing director and CEO, Yes Bank. The bank had about 56 ATMs at the end of the second quarter last year. While the bank has options to enhance its ATM network to 200 by this year, it has increased the network to only 88 at the end September 2008. “Banks open ATM also with an aim to enhance its visibility. Banks like us will hugely benefit from the RBI mandate, as our customers would be provided an access to all ATMs. We will downsize our annual rate of ATM expansion,” said a senior executive at Yes Bank.

Number of ATMs as on March 31

Bank 2007 2008

Yes Bank 56 75
IndusInd Bank* 150 220
ING Vysya 158 203
DCB 102 112
Kotak Mahindra 135 314
Approximate figures
Source: Banks and their websites


The average, fixed cost of setting up an ATM is estimated at Rs 6-8 lakh. There are about 30,000 ATMs in India. Some banks offer free access to other ATMs, either through a bilateral tie-up or through a switch. A bilateral tie-up is one where two banks agree to provide access to each other’s ATMs to their respective account-holders. The access is enabled through a switch and the inter-change fee is kept almost nil. But the bilateral partner, whose ATM network is larger, tends to gain more than the bank that has a smaller network.

On the other hand, a bank could also provide its customers an access to other banks’ ATMs through its own switch or through a switch managed by a third party. Here the bank pays Rs 8-9 per switch-enabled transaction to the company managing the switch. Companies like Euronet and Cashnet provide and manage switches for ATMs. Bankers said although the costs involved in switch-enabled transactions vary, operations are more economical than setting up a new ATM. Moreover, banks may not have to opt for bilateral tie-ups if the central bank makes all ATM transactions free of charge.

IndusInd Bank, which has over 220 own ATMs, said the bank offers its customers access to over 18,000 ATMs through multi-lateral tie-ups with other larger banks. “ATMs are set up with two basic reasons — for customer convenience and for brand visibility. I do agree that there will be a slowdown in the expansion of ATM networks, given the RBI mandate. But our bank will have to continue to expand its ATM network in tier-II and tier-III cities to maintain our visibility. As all ATM transactions are being made free from the next financial year, we will reassess the optimum number of ATMs we need to have,” said Sumant Kathpalia, head (consumer banking), IndusInd Bank.

Similarly, Bangalore-based ING Vysya Bank, which has largely confined its branches to the south so far and is currently focusing on expanding its north India operations, said the bank will re-evaluate its ATM expansion plans with the given RBI decision. The bank, which had about 194 ATMs at the end of December 2007, had said it would add 100 more ATMs. However, the bank currently has about 273 ATMs.

“We are still in the process of building up our brand. Without affecting our visibility, we would examine whether it is viable to grow our ATM network at the same pace that we used to do till last year. Although it is difficult to quantify the reduction in ATM growth, going forward, if charges are removed, we may apply for fewer licences,” said Sonalee Panda, head (products and marketing), ING Vysya Bank