In today's Finshots, we see why the government, RBI and the banks are in a deadlock when it comes to improving ATM access across the country.

The Story


Everybody knows they’re important. But it almost always seems like we are running short of them. For instance, data from the Reserve Bank of India shows that between 2016 and 2024, there’s been a mere 14% increase in ATMs.

Granted, you could attribute some of this to a demand problem. The proliferation of digital payments has had some impact on ATM use. But in reality, there’s also a big supply bottleneck and you can trace it back to an RBI initiative and the government policy of “Make in India”

Let us explain.

See, RBI likes ATMs. But they like them better when they’re secure and theft-proof. But there is a big problem in the way ATMs are being run. This can be illustrated by observing bank staff replenish cash inside an ATM. First, they prepare bundles of currency notes in various denominations. Then, the cash-in-transit (CIT) personnel transport the prepared cash to the ATM locations. At the ATM site, the personnel opens the ATM, accesses the cassettes, and finally loads the money.

This process requires manual counting and verification. During replenishment, CIT must take precautions to prevent plausible theft. They must also ensure that no customers are present during the process, which renders the machine unusable for that period of time.

This is obviously labour-intensive, time-consuming and carries inherent security risks.

Therefore, in 2018, the RBI issued a directive to banks urging them to start using lockable cash cassettes in all their ATMs. These lockable cassettes will have cash loaded in them already. All you need to do is swap out the old cassette for the new one and voila, you’re good to go. Needless to say, this mitigates some risks associated with open cash handling.

But this was a challenging feat to achieve. Partly because the RBI mandated all commercial banks to install lockable cassette swaps in their ATMs by March 31, 2021. They also estimated the cassette swaps to cost Rs 160 crore which the banks felt was a gross underestimation. The banks believed it would cost them upwards of Rs 3,000 crore.

In the end, the RBI did offer some concessions by pushing the deadline and it was finally set to March 31st 2024.

But banks still haven’t been able to fully comply with this directive. This begs the question — Are they openly defying RBI’s orders to save money or is there something else at play?

Well, there is a problem.

Replacing the old cassette systems with lockable cassettes, commonly called retrofitting, involves modifying the cash handling components within the ATMs without needing to replace the entire machine. But banks can’t do this on their own. They need to work with ATM manufacturers and service providers to upgrade their machines.

This would lead you to believe that the manufacturers are at fault.

But that’s not entirely true either. The manufacturers aren’t just selling retrofit kits. They’ve also been contracted to do a bunch of other things. For starters, they have to replace nearly 40,000 old ATMs because they’re getting old. In addition, banks are planning to install 10,000 more ATMs to expand their ATM network, mainly in semi-urban and rural areas and manufacturers have to step up to the plate here as well. And finally, banks want to add cash recycling machines (CRM) to ATMs. Cash-recycling ATMs accept currency deposits and dispense cash. They operate from the same cassette to handle both functions seamlessly. By consolidating deposits and withdrawals, they minimise the need for frequent cash replenishment.

So as it stands manufacturers have a lot to do.

But they can’t quite go about it like others because there’s the “Make in India” initiative.

When the government institutionalized the ‘Make in India’ campaign (2014), it wanted to beef up domestic production capabilities across several industries, including ATMs. And in 2020, the government further developed policy guidelines to establish ATM production facilities here in India.

What does this mean?

First, critical components, such as cash dispensers, card readers, and security modules, are often imported due to technological complexities or lack of local suppliers. However, the ‘Make in India’ guidelines require ATM manufacturing companies to source a certain percentage of components locally. For ATMs, this means that vendors must use Indian-made parts, which can limit their options.

Also, ATMs must comply with various certifications and standards (such as EMV, PCI DSS, and ISO) to ensure security, interoperability, and functionality. Meeting these standards can be challenging for domestic manufacturers, especially if they lack experience or resources.

This means the domestic manufacturing and supply chain will take time to mature and fulfil the banks’ many ATM requirements. And even if they could somehow fill the gap, there’s another matter we haven’t talked about yet — the GeM portal. All public sector banks (PSBs) must place their orders for new ATMs including lockable cassettes through the GeM portal.

The Government e-Market (GeM) online portal was launched in 2016 to ease the procurement process for central government ministries and departments. They can order various products, from office stationery, computers, and office furniture to vehicles. The portal also lists services, including transportation, logistics, waste management, webcasting, and more.

However, not all ATM vendors are currently registered on the GeM portal and this severely limits a bank’s options.

So even though banks are trying to meet the RBI’s directive of swapping old parts, they’re struggling to do this because of supply chain issues. In a desperate bid, they are now trying to reach out to both the RBI and the Government of India to extend the deadline for achieving the lockable cassette swaps at ATMs and easing the guidelines under ‘Make in India’.

Will the government and the RBI yield?

We don’t know. But unless both parties meet midway there’s little chance we will be seeing upgraded ATMs sprout across the country.

Until then…

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